We practice law in the Sooner State, and many folks here wonder if there is an Oklahoma estate tax. Let’s take a look at the subject so you fully understand the taxes that can enter the picture after you pass away.
Income Taxes
First, let’s clear up a misconception about income taxes. You do not have to report an inheritance as taxable income on the state or federal level. An exception would be distributions of untaxed portions of a trust’s earnings.
Capital Gains Tax
Let’s say that your grandfather leaves you 500 shares of stock that are worth $500 a share. He bought the stock for $50 a share many years before his passing. Your grandfather paid $25,000 for the stock, but when you inherit them, the shares are worth $250,000.
Do you have to pay capital gains taxes on the $225,000 in gains? The answer is no because the assets get a stepped-up basis. For capital gains purposes, the meter is reset, and the basis becomes $250,000 rather than $25,000.
State-Level Estate Taxes
Moving on to the matter of an Oklahoma estate tax, there are a dozen states in the union that have state-level estate taxes. The District of Columbia has its own estate tax as well. Oklahoma is not one of the 12 states with estate taxes.
However, if you own valuable property in a state with an estate tax, it would apply to your estate. That’s the bad news, but the good news is that there are exclusions. The property would be subject to taxation if its value exceeds the exclusion in the state where it is located.
Oregon has the lowest state-level estate tax exclusion in the country at $1 million, so there are some significant cushions.
Federal Estate Tax
The federal estate tax is another looming threat, but it is only a factor for high-net-worth individuals. It carries a 40 percent maximum rate, and the federal exclusion is $13.61 million.
This is the highest exclusion that we have ever had. It is a product of a provision in the Tax Cuts and Jobs Act that went into effect in 2018.
That provision is going to expire at the end of 2025. In 2017, the exclusion was $5.49 million. When the tax cuts sunset on January 1, 2026, the exclusion will revert back that 2017 level indexed for inflation.
Federal Gift Tax
You can’t give large gifts to avoid the estate tax because there’s a gift tax. The two taxes were unified in 1977, so the exclusion is a unified exclusion. It encompasses gifts that you give during your lifetime along with the estate that will be transferred after your death.
Window of Opportunity
When you digest all this information, you can see that people who are exposed to the estate tax have an opportunity. If you are one of them, you could use the record high exclusion to give gifts between now and 2026.
You do not necessarily have to transfer property directly. The exclusion could be used to fund certain types of tax efficiency trusts that facilitate transfers at tax discounts.
Access Our Estate Planning Worksheet!
We have developed an estate planning worksheet that you can use to gain a more complete understanding of this process. It is being offered free of charge, and you can visit our worksheet access page to get your copy.
Schedule a Consultation Today!
If you’re ready to get down to business to put a plan in place, we can help. You can call our Oklahoma City estate planning office at 405-843-6100 to schedule a consultation.
Our Tulsa, Oklahoma location can be reached at 918-615-2700, and you can fill out our contact form if you would like to send us a message.
