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Massachusetts estate tax on property outside the state

On Behalf of | Sep 24, 2016 | Tax Controversies

An estate tax return must be filed after the loss of a loved one. The federal Estate and Gift Tax exemption has increased over the last few years to its current $5,450,000. A couple can combine the exclusion to pass up to $10.9 million dollars without federal tax consequences.

However, Massachusetts has a lower exemption amount of $1 million. And the state does tax Massachusetts residents on the value of property owned outside of the state. This can have significant consequences for snow birds with homes in Florida. In this blog, we explain more.

Generally, the other state – where the property is located – will impose its own estate tax on the value of the property. Massachusetts offers a credit for any tax paid to the other state. When can problems and tax disputes arise?

No estate tax in the other state or a foreign country

Many couples who have lived through one too many New England winters purchase vacation homes in sunny Florida. Or you may own a property in another country after living abroad for some time or in anticipation of retiring abroad.

When real estate is located in Florida, which has no estate tax, or in a foreign country, you cannot claim a credit. A similar issue occurs when the other state has a larger estate tax exemption closer to the federal one.

This could lead to a constitutional due process issue. The 14th Amendment prevents states from taxing real property in other jurisdictions. However, the law is not entirely clear on this issue. No cases have applied this clause to the Massachusetts estate tax statute. Depending on the amount of the tax burden, you may want to question whether the real estate is subject to Massachusetts estate tax.

A tax attorney can provide counsel and guidance prior to filing an estate tax return. If you have already filed and now the Massachusetts Department of Revenue has questions, seek advice before responding.


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