Iowa Inheritance Tax

Iowa inheritance tax is a tax levied on the share of a deceased person’s estate going to a beneficiary. This share is determined by the beneficiary’s relationship to the deceased person. Surviving spouses, adopted children and stepchildren, parents, grandparents, great-grandparents, grandchildren, and lineal ascendants and descendants are exempt from the Iowa inheritance tax. Inherited money used to pay for a cemetery lot and up to $500 of inherited money to pay for religious services are also exempt from the tax. In addition, heirs can avoid paying the inheritance tax on the proceeds of life insurance policies or retirement accounts that they inherit.

Inheritance taxes are also imposed on estates that contain real estate or personal property worth over $100,000. The amount of inheritance tax due is based on the value of the estate and the beneficiaries’ relationships to the deceased person. The Iowa inheritance tax rate is currently 9%. However, the state plans to phase out this tax by 2025 and reduce it by 20% each year until then.

Iowa Inheritance Tax Liability

The state’s inheritance tax rates vary depending on the beneficiary’s relationship to the deceased. The rate for siblings (full or half), nieces and nephews, and cousins starts at 5% and can go up to 15%. Non-linear relatives and friends are not subject to inheritance tax in Iowa.

The value of the net estate is used to determine inheritance tax liability. This figure includes the gross estate plus certain debts and deductions. Typically, debts of the decedent owing at the time of death and funeral expenses are deductible. Other deductible items include real estate taxes and probate expenses.

The estate’s personal representative is responsible for filing an inheritance tax return and paying any owed tax. Once payment has been made, an inheritance tax clearance is issued, and the estate can be closed. Inheritance taxes are gradually being phased out in Iowa and will be eliminated for deaths occurring after 2025.

How to File Iowa Inheritance Tax?

To file an Iowa Inheritance Tax Return, complete Form IA 706. Include the name and address of each beneficiary, their age and Social Security number, and their relationship to the deceased. Enter the share of the estate that each beneficiary will receive. Note that half-relatives are treated differently than full-relatives.

Beneficiaries are responsible for filing an inheritance tax return if their share of the gross estate is over $25,000 or more. They must file a Form 706 and submit it before the last day of the ninth month after the death of the decedent. In addition to the inheritance tax return, the beneficiaries must also include a copy of the decedent’s will and other probate documents.

The beneficiaries must also enlist a knowledgeable estate planning attorney to help them determine the best way to prepare their estates and minimize inheritance taxes. Depending on the size of their estate, some beneficiaries may also need to pay the federal estate tax.