Here is a summary of the current state of Estate Taxes in the DMV region as of January 1, 2022. This article is for informational purposes only. Please consult your attorney or CPA regarding your financial situation.
Effective for people dying in 2021, DC imposes an estate tax on estates valued over $4 million. The tax rate varies from 10% to 16%, based on the value of the estate. In prior years the estate tax exemption applied to estates valued at less than $5 million, indexed for inflation. For example, D.C.’s estate tax exemption was $5,762,400 for 2020 decedents and $5,681,760 for 2019 decedents. The legislation that established the $4 million exemption amount also called for an annual increase based on a cost-of-living adjustment (COLA) beginning in 2022. As of early 2022, the COLA rate has not been established.
Taxable estates in DC may also be subject to federal estate taxes. The Tax Cut and Jobs Act of 2017 temporarily double the federal estate tax exemption to $10 million, indexed for inflation. For 2022, the exemption amount is $12, 060,000. The exemption is due to sunset in 2025 and return to $5 million, indexed for inflation. Federal law allows a credit for state estate taxes paid when calculating the federal estate tax that is due.
Federal law allows a decedent to transfer unused estate tax exemption amounts to a surviving spouse, but DC does not recognize the technique which is known as “portability”. The DC Council has had legislation under consideration for at least two years that would enact portability.
The state estate tax exemption is currently $5 million for persons dying in 2019 or later, with no cost-of-living adjustments. Maryland does allow portability by which a decedent can share any unused estate tax exemption with a surviving spouse. The tax rate is on a graduated scale beginning with estates valued at $5,040,000 where the tax rate is .8% and topping out at 16% for estates in excess of $15,040,000.
Maryland also imposes an inheritance tax, assessed on the recipient and not on the estate, based on the relationship between the decedent and the heir. Property passing to a child or other lineal descendant, spouse of a child or other lineal descendant, spouse, parent, grandparent, stepchild, stepparent or siblings is exempt from taxation. All other heirs are subject to a 10% tax based on the value of the property conveyed. A unique aspect of Maryland’s inheritance tax is to exempt from tax a primary residence owned by domestic partners as joint tenants at the time of one partner’s death.
Virginia repealed its estate tax law in 2007 and does not have an inheritance tax.