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Inheritance tax is paid to the IRS for assuming ownership of the asset or property from the estate of the decedent.
Technically, inheritance tax has to be paid even before you get your inheritance. This means that the IRS gets the tax amount before you lay your hands on the inheritance. This is done so that the money or property is not taxed twice.
Although you pay the taxes to the IRS, there is no IRS tax law or tax code for inheritance tax rate. Instead, there are exemptions and credits that apply to the property or money that is inherited. There is a prescribed method by which the IRS determines whether there is any inheritance tax due on the asset or money that you have inherited. This should be kept in mind when you are settling an estate and the best person to advice you on inheritance tax is either an attorney or a tax accountant.
When paying inheritance tax, the first step is to determine and calculate the fair market value of the entire estate. This would include cash, bank accounts, real estate, insurance, stocks and bonds. This will give you the gross estate value. After that the adjustments are calculated. This could mean paying off a mortgage or fees associated with the estate settlement. If the inheritance is left to a spouse, even marital deduction is done. Once all the deductions and adjustments are taken care of, what is left is the net value of the inheritance, based on which inheritance tax is calculated and paid to the IRS. It is only after the payment, will the beneficiary be able to claim ownership to the inheritance.
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