Your Survival Guy is here to report this Columbus Day Monday, that the streets of Newport were buzzing this weekend with newly arrived transplants from places like New York City. They tote their Chanel bags and have puffy lips adorned with bright red lipstick, looking like fish out of water. If you were looking to buy real estate here, that ship has sailed.
Scanning the real estate transactions, you see buyers with names you don’t remember being part of your child’s Little League team or school homeroom. Instead you see last names you don’t recognize, followed by: Family Trust, LLC, or Corporation. In other words the last name might as well just say: Monied.
What you’re seeing is the escape from the lockdown blue states where governors allowed the virus to spread fear and create incentive to leave. When Massachusetts, Connecticut, New Jersey, and New York shut down their economies, the race was on to flee. Newport, Rhode Island just happened to be a nice street in a bad neighborhood called the northeast. These are all-cash deals, and you’ll need truckloads of it for your million-dollar “cottage.”
You just don’t want to die in Rhode Island. But don’t worry about the new arrivals. They’ll be just fine. Some family entities never die.
John Waggoner writes for AARP:
Most people don’t have to worry about the federal estate tax, which excludes up to $11.58 million for individuals and $23.16 million for married couples in the 2020 tax year. But 17 states and the District of Columbia may tax your estate, an inheritance or both, according to the Tax Foundation.
Eleven states have only an estate tax: Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Washington, D.C. does, as well. Estate taxes are levied on the value of a decedent’s assets after debts have been paid. Maine, for example, levies no tax the first $5.7 million of an estate and taxes amounts above that at a rate of 8 percent to a maximum 12 percent.
Iowa, Kentucky, Nebraska, New Jersey, Pennsylvania and Rhode Island have only an inheritance tax — that is, a tax on what you receive as the beneficiary of an estate. Kentucky, for example, taxes inheritances at up to 16 percent. Spouses and certain other heirs are typically excluded by states from paying inheritance taxes.
Maryland is the lone state that levies both an inheritance tax and an estate tax.
- Connecticut: Estate tax of 10 percent to 12 percent on estates above $5.1 million
- District of Columbia: Estate tax of 12 percent to 16 percent on estates above $5.8 million
- Hawaii: Estate tax of 10 percent to 20 percent on estates above $5.5 million
- Illinois: Estate tax of 0.8 percent to 16 percent on estates above $4 million
- Iowa: Inheritance tax of up to 15 percent
- Kentucky: Inheritance tax of up to 16 percent
- Maine: Estate tax of 8 percent to 12 percent on estates above $5.7 million
- Maryland: Estate tax of 0.8 percent to 16 percent on estates above $5 million; inheritance tax of up to 10 percent
- Massachusetts: 8 percent to 16 percent on estates above $1 million
- Minnesota: 13 percent to 16 percent on estates above $3 million
- Nebraska:Inheritance tax of up to 18 percent
- New Jersey: Inheritance tax of up to 16 percent
- New York: Estate tax of 3.06 percent to 16 percent for estates above $5.9 million
- Oregon: Estate tax of 10 percent to 16 percent on estates above $1 million
- Pennsylvania: Inheritance tax of up to 15 percent
- Rhode Island: Estate tax of 0.8 percent to 16 percent on estates above $1.6 million
- Vermont: Estate tax of 16 percent on estates above $2.8 million
- Washington: Estate tax of 10 percent to 20 percent on estates above $2.2 million
Federal estate tax largely tamed
The Tax Cuts and Jobs Act, signed into law in 2017, doubled the exemption for the federal estate tax and indexed that exemption to inflation. The maximum federal estate tax rate is 40 percent on the value of an estate above that amount. The higher exemption will expire Dec. 31, 2025.
Relatively few people will pay federal estate taxes this year. About 4,100 estate tax returns will be filed for people who die in 2020, of which only about 1,900 estates will be taxable — less than 0.1 percent of the 2.8 million people expected to die this year, according to the Tax Policy Center. Because of the large exemption, few farms or family businesses pay the tax.
There is no federal tax on inheritances. Heirs can get an extra advantage when they inherit an appreciated asset, such as a stock or mutual fund. When they sell that asset, the taxable gain is generally computed favorably, based on the value of the asset at the time of the original owner’s death rather than the value when the original owner purchased it. That typically results in a smaller taxable gain for the heir.
