Florida does not have a state estate tax
Florida is one of the states that does not charge an estate tax on the property someone leaves behind when they die. This means that when a Florida resident passes away, their heirs do not owe state-level estate taxes on the inheritance, regardless of how large the estate is.
However, the absence of a Florida state estate tax does not mean estates are entirely free from taxation. The federal government still taxes large estates, and some of the property in an estate may be subject to federal income tax depending on how it is structured and what it earns. Understanding the difference between state and federal taxes is important for anyone planning an estate or inheriting property in Florida.
Key Takeaways
- Florida has no state estate tax, so heirs do not owe state taxes on inheritances no matter the size.
- The federal government taxes estates larger than a certain threshold, which changes yearly and is currently much higher than most estates.
- Some inherited property may still generate income taxes after the person dies if it produces income like rent or dividends.
- Florida also has no state inheritance tax, which is different from an estate tax but would affect heirs in other states.
The difference between state and federal estate taxes
An estate tax is a tax on the total value of everything a person owned when they died. A state estate tax is collected by the state where the person lived or owned property. A federal estate tax is collected by the Internal Revenue Service and applies to all estates in the United States that exceed a certain value.
Florida collects no state estate tax. However, the federal government does tax large estates. The federal threshold changes each year — it is currently set much higher than the size of most estates, which is why most Florida residents do not owe federal estate taxes. The executor of an estate (the person handling the estate) only needs to file a federal estate tax return if the estate exceeds the federal threshold.
It is also worth knowing that Florida has no state inheritance tax. An inheritance tax is different from an estate tax — it is a tax that heirs owe on what they receive. Some states charge inheritance tax even though they do not charge estate tax. Florida charges neither.
Who pays federal estate taxes and when
The federal government taxes estates that exceed a certain value at the time of death. That threshold is set by federal law and changes each year. Because the threshold is currently quite high, most estates do not owe federal tax.
When an estate does exceed the federal threshold, the executor must file a federal estate tax return with the IRS. The return is due nine months after the person's death, though an extension can be requested. The tax is paid from the estate's assets before the remaining property is distributed to heirs.
The federal tax rate on estates that do exceed the threshold is a flat percentage set by law. The exact amount owed depends on how much the estate exceeds the threshold and how the property is structured.
What types of property are included in a Florida estate
An estate includes almost everything a person owned at the time of death: real estate, bank accounts, investment accounts, vehicles, jewelry, and personal belongings. It also includes life insurance proceeds if the person's estate is named as the beneficiary, and retirement accounts if no beneficiary was named.
Some property passes outside of the estate and goes directly to named beneficiaries without going through the probate process. This includes property held in a living trust, retirement accounts with a named beneficiary, and bank accounts set up as "payable on death" accounts. Because this property does not go through the estate, it is not counted toward the estate's total value for tax purposes — though it may still be counted for federal estate tax purposes.
Income taxes on inherited property after death
Even though Florida has no estate tax, some inherited property may generate income taxes after the person dies. If the estate earns income — such as rent from real estate, dividends from investments, or interest from bank accounts — that income is taxable. The executor must file an income tax return for the estate itself if the income exceeds a certain amount.
Heirs may also owe income taxes on income they receive from inherited property after they receive it. For example, if an heir inherits a rental property and collects rent, that rent is income and must be reported on the heir's tax return. The same applies to dividends, interest, or other earnings from inherited investments.
The good news is that inherited property usually receives a "step-up in basis," which means the value of the property is reset to its fair market value on the date of death. This can significantly reduce or eliminate capital gains taxes if the heir sells the property shortly after inheriting it.
How to plan an estate in Florida
Because Florida has no state estate tax, estate planning in Florida is simpler than in states that do charge estate tax. However, federal estate taxes and income taxes still matter for large estates, and proper planning can help reduce the overall tax burden.
Common estate planning tools used in Florida include wills, living trusts, and beneficiary designations on accounts and insurance policies. A will is a legal document that says who gets your property after you die. A living trust is a document that lets you transfer property into a trust during your lifetime, and that property passes to beneficiaries without going through probate. Beneficiary designations on retirement accounts and life insurance let you name who receives those assets directly.
For large estates that may owe federal taxes, strategies like gifting during your lifetime, setting up trusts, and using life insurance can help reduce the amount owed. Anyone with a large estate or complex family situation should speak with an estate planning attorney or tax professional who understands Florida law.
Frequently Asked Questions
Does Florida tax inheritances?
No. Florida has no state inheritance tax or state estate tax. Heirs do not owe state taxes on what they inherit. The federal government may tax very large estates, but most Florida estates do not reach that threshold.
What is the federal estate tax threshold for 2024?
The federal threshold changes each year based on inflation. You can find the current year's threshold on the IRS website or by speaking with a tax professional. Because the threshold is quite high, most estates do not owe federal tax.
Do I need to file an estate tax return in Florida?
Florida does not require estate tax returns. However, if the estate exceeds the federal threshold, a federal estate tax return must be filed with the IRS within nine months of death. The executor handles this filing.
Can I avoid federal estate taxes by moving to Florida?
Moving to Florida does not avoid federal estate taxes. Federal estate tax applies to all U.S. residents and citizens based on the total value of their estate, not where they live. However, Florida's lack of state estate tax does make it a more tax-friendly state for residents with large estates.
What happens to my retirement accounts and life insurance when I die?
Retirement accounts and life insurance with named beneficiaries pass directly to those beneficiaries outside of your estate. They are not subject to probate in Florida, but they may still count toward your federal estate tax threshold if your estate is very large.