Md Estate Tax

[TAXMAN]

I may be confused. MD is charging an estate fee of 44k for fmv of real estate of a non resident Estate. Real estate was the only asset that TP had when he died. Tp was a Virginia Resident. My question is can I deduct this fee on the final form 1041 or can I add it to the basis of property? 

[Medlin Software, Dennis]

Maryland Foreign Estate Tax? I see something a law firm posted about how to avoid, but nothing about whether the bite can be mitigated after the fact (deducted or basis change). I did not look hard.

[jklcpa]

11 hours ago, TAXMAN said:

MD is charging an estate fee of 44k for fmv of real estate of a non resident Estate.

Is this fee the 1% Foreign Estate Fee charged to MD nonresidents owning property in MD, meaning the property in question was worth $4.4 million. Is that correct?  If so, this is a fee charged by MD Register of Wills that allows the estate to convey title to that MD property when it is sold or bequeathed.  To me, that sounds like a probate fee or fee that allows similar probate-type authority granted by MD Reg of Wills, and I would probably treat it as such.

You should do some more research as this is just my opinion. Maybe some of our MD preparers will chime in on this too.

[TAXMAN]

According to the invoice I received It reads Non-probate inh. Tax(10%)Real property valued at $440k Passing to collateral heirs. Full amount subject to inheritance tax @ 10%. Real Estate has not yet been sold. Heirs are 10 nieces/cousins. So Can I deduct the full amount on a 1041 for property being sold as an expense or add to basis?

 

[Lee B]

https://www.darslaw.com/news/what-is-maryland-inheritance-tax-and-who-pays-it/

This is not my area of expertise, but I did some online searches since the topic is still unresolved.

Based on my reading, it's an inheritance tax not an estate tax. 

It probably should be added to each beneficiaries basis.

[jklcpa]

No, this inheritance tax is NOT a deductible expense on the estate's income tax form 1041.  If form 706 had been required, it could have been a deduction there against the gross estate, but not on the 1041.

It also is NOT added to the basis of property. If form 706 is not required, then the basis of the property to the heirs is the appraised value at date of death that is used to calculate the inheritance tax. In the case above, the $440K value will be split between the 10 heirs.

 

[Lee B]

12 hours ago, jklcpa said:

No, this inheritance tax is NOT a deductible expense on the estate's income tax form 1041.  If form 706 had been required, it could have been a deduction there against the gross estate, but not on the 1041.

 

 

Just curious, if it's an inheritance tax on the beneficiaries receipt of the property, why is it deductible on the form 706?

[jklcpa]

22 minutes ago, Lee B said:

Just curious, if it's an inheritance tax on the beneficiaries receipt of the property, why is it deductible on the form 706?

Well, if the estate wasn't cash poor and had enough to pay the tax prior to final distributions, it would have been paid from estate's liquid assets prior to heirs receiving the property and they would have received the net value. They will end up in the same position once they sell, if they sell, the property.

From form 706 instructions
 

Quote

Line 3b. State Death Tax Deduction
You may take a deduction on line 3b for estate, inheritance, legacy, or succession taxes paid on any property included in the gross estate as the result of the decedent's death to any state or the District of Columbia.
You may claim an anticipated amount of deduction and figure the federal estate tax on the return before the state death taxes have been paid. However, the deduction cannot be finally allowed unless you pay the state death taxes and claim the deduction within 4 years after the return is filed, or later (see section 2058(b)) if:

• • A petition is filed with the Tax Court of the United States,
• • You have an extension of time to pay, or
• • You file a claim for refund or credit of an overpayment which extends the deadline for claiming the deduction