I inherited a house from my aunt. What inheritance tax is due?

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Q. If I inherited a house from my aunt. Will I have to pay inheritance tax on it? Both myself and my aunt are residents of New Jersey. If I do have to pay inheritance tax, how much would it be and what is the formula to calculate it?
— Heir

A. We’re sorry to hear about your aunt.

There are a few considerations here.

If your aunt passed away as a resident of New Jersey owning a home in New Jersey, and you inherit the home, inheritance tax will be assessed on the transfer, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Unless your aunt executed a will that specifically directs that all death and/or inheritance tax be paid from the estate, then each beneficiary is required to pay the death or inheritance taxes assessed against his or her bequest, Romania said.

The tax is based on the fair market value of the home at the time of your aunt’s death.

For that reason, the executor, if there is a will, or the administrator, if there is no will, or you, if there is no executor or administrator, will need to obtain an appraisal or market analysis of the home, she said.

The tax is based upon the beneficiary’s relationship to the decedent.

“As a niece or nephew, you are a Class D beneficiary,” Romania said. “Tax is assessed on transfers to Class D beneficiaries at 15% of the value of the bequest on any amount up to $700,000 and 16% of the value of the bequest on amounts in excess of $700,000.”

The New Jersey Division of Taxation will have a lien on the property for 15 years from the decedent’s date of death unless the tax is paid prior, Romania said. Once the tax is paid, you will receive a Form 0-1, also known as a waiver, to file with the county clerk in the county in which the property is located, Romania said. The waiver releases the lien on the property.

If you inherit real property from a decedent, it is important to have ownership of the property transferred into your name by a recorded deed, Romania said.

“The property should not remain in the name of the decedent notwithstanding the decedent was a close family member,” she said. “You should also obtain homeowner’s insurance in your own name and speak to your attorney about obtaining a title or lien search and title insurance. It becomes more difficult to transfer the property years later or after your death if the first transfer was never properly recorded.”

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This story was originally published on Feb. 21, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.