What You Should Know About Inheritance Tax in Texas

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It can sometimes seem like tax payments apply to whatever you do in life. As you might have guessed, that can often be the case with the purchase, sale, and even gifting of property. 

However, if you live in Texas and have been gifted property as inheritance, you may be surprised at how generous the state of Texas can be. Familiarize yourself with inheritance tax and other tax types in Texas below to be fully informed about what you can expect. 

Does Texas Have an Inheritance Tax?

While most states in the United States have an inheritance tax, Texas doesn’t. Therefore, if you inherit possessions, property to sell or keep, or money from a loved one in Texas, you most likely won’t need to pay any tax. 

However, if a loved one gifts you something elsewhere in the country, you may need to pay that state’s inheritance tax. Estate and inheritance tax laws are different in most states. 

Does Texas Have a Gift Tax?

Texas doesn’t have a gift tax, which can provide much-needed peace of mind if a family member or friend gives you something. However, a federal gift tax may apply if that gift is to the value of more than $15,000. 

Estate Taxes in Texas

One of the main reasons many people decide to sell properties they have inherited is the overwhelming costs associated with homeownership. Alongside property taxes, you also have to consider repairs and maintenance and, sometimes, estate taxes. 

The estate tax is often referred to as death tax, which is a tax type applied to the estate of someone who has recently died before their money is transferred to their heirs. 

Fortunately, Texas doesn’t have an estate tax and is one of the dozens of states without it. As of 2021, the federal estate tax only kicks in once the deceased’s estate is valued at above $11.7 million. If a property is jointly owned and both spouses die, that figure is lifted to $23.4 million, with a top federal tax estate of 40%. 

What Other Taxes May Apply?

Aside from the possibility of having to pay federal and out-of-state taxes on a property you’re inheriting, you will likely also be required to pay property taxes. In Texas, these are calculated as a percentage of your property’s appraised value. 

Texas has the seventh-highest property tax rate in the United States, with an average rate of 1.80%. As a result, if you inherited a $400,000 property, you may need to pay approximately $7,200 per year in taxes. 

I Can’t Afford My Inherited Home’s Taxes, What Do I Do?

Inheriting a home can be a blessing for many people who haven’t yet been able to take their first step onto the property ladder. However, it can be a burden for those who may not be financially able to pay property-related costs

Fortunately, you can sell your inherited home quickly to professional buyers. They can purchase homes in any condition, help you pay back any back taxes and other related property debts, and see you walking away with cash in hand. 

Texas is undoubtedly generous when it comes to inheritance taxes, but it doesn’t mean those who inherit homes can manage other related costs. Whether you already have a home and need a fast sale, or you don’t have the financial means to keep one you’ve been gifted, now might be the time to look at your sales options.