Quarryville, PA asked in Tax Law and Probate for Pennsylvania

Q: Pa inheritance tax method? Mom died. the 100 acre farm(Pa) in clean and green will be sold outside of family.

One person said to use C & G assessment value instead of fair market value to compute inheritance tax. True?

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2 Lawyer Answers
W. J. Winterstein Jr.
W. J. Winterstein Jr.
PREMIUM
Answered
  • Probate Lawyer
  • Boyertown, PA
  • Licensed in Pennsylvania

A: PA inheritance tax on bequests to child/children is five percent. When that is paid, the property enjoys a "stepped up basis", so that on a subsequent sale of the property, any capital gain is computed as the difference between the stepped up basis and the sale price, both for PA and federal income tax purposes. Most probably, it would be tax-smart to pay the 5% tax now, rather than the much larger income tax later.

Michael Cherewka
Michael Cherewka
Answered
  • Probate Lawyer
  • Wormleysburg, PA
  • Licensed in Pennsylvania

A: First of all the Department of Revenue will usually accept the assessed value (adjusted for county common level ratio) for computing inheritance tax, but it is not likely to accept the assessed value as reduced for Clean & Green.

Second, whether you want to report a low value for inheritance tax purposes (4.5% tax if all heirs are children or lineal heirs) may depend on what the heirs plan to do with the property. If the plan is to sell the property or develop it, may be better to report a higher fair market value (ie., get an appraisal or other valuation) and pay the inheritance tax so heirs can establish a higher income tax basis in the property and then reduce their income taxes (Federal tax rate likely 15% plus PA tax of 3.07%) when the property is sold.

Take the time to meet with an attorney and review your options before you file that tax return

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