Indiana does not levy an estate tax.1 Residents of the state may still have to pay the federal estate tax, though, if their estates are worth enough. This guide is for Hoosiers who are starting to think about their own estates and want to find out what they need to do to protect their legacy. Estate planning can take some work, though, so you may want to find a professional to help you out. SmartAsset can help you find a professional who meets your needs with our free financial advisor matching service.
Indiana Estate Tax
Indiana is one of 38 states in the nation that does not have an estate tax.
What Is the Estate Tax?
The estate tax, sometimes referred to as the “death tax,” is levied on the estate of a person who has recently died. The assets in the estate are subject to the tax before they are dispersed to a person’s heirs. Only estates with values reaching a certain threshold are taxed. The threshold varies based on municipality.
Estate tax is one of two ways an estate may be taxed. There is also a tax called the inheritance tax. Inheritance tax applies to assets after they are passed on to a person’s heirs. Whereas the estate of the deceased is liable for the estate tax, beneficiaries pay the inheritance tax.
Indiana Inheritance and Gift Tax
There is no inheritance tax in Indiana either. However, other states’ inheritance laws may apply to you if someone living in a state with an inheritance tax leaves you money or property. In Pennsylvania, for instance, there is an inheritance tax that applies to out-of-state inheritors. If someone leaves you something from their estate and they live out of state, make sure to check local laws. It is better to know up front if you’ll owe taxes rather than finding out later that you are in arrears.2
Indiana does not levy a gift tax. The federal government has a gift tax though, with a yearly exemption of $16,000 per recipient for 2022, going up to $17,000 for 2023. This means that if you give one person more than $17,000 in a year then you must report the gift to the IRS. The excess counts against your lifetime gift tax exemption of $12.92 million and decreases your exemption for the federal estate tax.
Federal Estate Tax
Though Indiana does not have an estate tax, you still may have to pay the federal estate tax if you have enough assets. The exemption for the federal estate tax is $12.06 million in 2022 and increases to $12.92 million in 2023. The exemption has portability for married couples, meaning that with the right legal maneuvers a couple can protect up to $25.84 million when the second spouse dies.3
Estates with assets beyond the federal exemption level will have to pay the federal estate tax. A table of the rates, which top out at 40%, is provided below.
Here is how you calculate your estate tax burden: Let’s say you are single and have a total estate of $15.92 million. First, you’ll subtract the $12.92 million exemption and see you have a taxable estate of $3 million. That places you in the top tax bracket, with a base payment of $345,800 on the first $1 million. You also must pay 40% on the remaining $2 million, which comes to $800,000. That amount plus the base payment adds up to a total tax burden of $1,145,800.4
FEDERAL ESTATE TAX RATES
| Taxable Estate* | Base Taxes Paid | Marginal Rate | Rate Threshold** |
| $1 – $10,000 | $0 | 18% | $1 |
| $10,000 – $20,000 | $1,800 | 20% | $10,000 |
| $20,000 – $40,000 | $3,800 | 22% | $20,000 |
| $40,000 – $60,000 | $8,200 | 24% | $40,000 |
| $60,000 – $80,000 | $13,000 | 26% | $60,000 |
| $80,000 – $100,000 | $18,200 | 28% | $80,000 |
| $100,000 – $150,000 | $23,800 | 30% | $100,000 |
| $150,000 – $250,000 | $38,800 | 32% | $150,000 |
| $250,000 – $500,000 | $70,800 | 34% | $250,000 |
| $500,000 – $750,000 | $155,800 | 37% | $500,000 |
| $750,000 – $1 million | $248,300 | 39% | $750,000 |
| Over $1 million | $345,800 | 40% | $1 million |
*The taxable estate is the total above the federal exemption of $12.92 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Indiana Tax Picture
Indiana is moderately tax-friendly for retirees. The state does not tax Social Security benefits. It fully taxes withdrawals from retirement accounts and income from public and private pension plans. Indiana uses a flat tax for income at a rate of 3.23%.
Property tax rates in Indiana are below the national average, with an effective rate of 0.75%. Indiana also offers a deduction to seniors ages 65 and over. If you own and occupy your primary residence, have a combined income of less than $40,000 and have a home valued at less than $200,000, you are eligible for a tax deduction of up to $14,000. Indiana also has a homestead deduction. The standard homestead deduction is equal to the lesser of 60% of the assessed value or $45,000. There’s also a supplemental homestead deduction, which is equal to 35% of the first $600,000 in value and 25% of value above that.
Sales tax in Indiana is 7%, with no local sales tax.
Estate Planning Tips
- There is nothing wrong with asking for help in life, and that includes in matters of estate planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A living trust won’t protect you from the estate tax. However, it can help your family avoid probate and make their lives a bit easier when you’re gone. Just like with estate tax laws, the laws governing living trusts may vary state by state. Make sure to read up on your state’s laws if you’re considering getting a living trust.
Sources
- “Inheritance Tax Information.” Indiana Department of Revenue. DOR, June 22, 2020. https://www.in.gov/dor/tax-forms/inheritance-tax-forms/inheritance-tax-information/.
- Pennsylvania Department of Revenue. “Inheritance Tax.” https://www.revenue.pa.gov:443/TaxTypes/InheritanceTax/Pages/default.aspx.
- “Frequently Asked Questions on Estate Taxes.” Internal Revenue Service, August 9, 2023. https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes.
- “Estate Tax.” Internal Revenue Service, October 26, 2022. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax.
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