Arizona has no estate tax.1 No matter the size of your estate, you will not owe anything to the state. If your estate is worth enough, though, there’s a chance you could owe the federal estate tax. If you are planning an estate or dealing with any other financial planning issues, you might want to consider finding a financial advisor who can help you. SmartAsset can help you find a financial advisor in your area for free.
Arizona Estate Tax
There is no Arizona estate tax. The Grand Canyon State is one of 38 states with no estate tax.
What Is the Estate Tax?
The estate tax takes money from certain estates after a person has died. It is sometimes referred to as the “death tax.”
The estate tax is different from the inheritance tax. The inheritance tax is levied on those who inherit money and is taken after money from an estate has been dispersed.
Arizona Inheritance Tax and Gift Tax
There is no inheritance tax in Arizona. If you have a loved one who lives in another state, however, you should check the local laws. Pennsylvania, for instance, as an inheritance tax that can apply to out-of-state heirs.2
Arizona also has no gift tax. The federal gift tax exemption is $16,000 per person each year for 2022 and $17,000 per person each year for 2023. Gifting more than that to one person in a single year will lower your lifetime exemption of $12.92 million.
Federal Estate Tax
Even though there is no Arizona estate tax, the federal estate tax may apply to your estate. The federal estate tax exemption is $12.06 million for 2022 and increases to $12.92 million for 2023. This tax is portable for married couples. With the right legal steps, a couple can protect up to $25.84 million when both spouses have died.3
If an estate exceeds that amount, the top federal tax rate is 40%. A full chart of federal estate tax rates is below.
Here’s an example of how it works: Let’s say your estate is worth $18.74 million and you aren’t married. Subtracting the exemption of $12.92 million, leaves a taxable estate of $5.82 million. Consulting the chart, you’ll see that your estate is in the highest bracket. Your base tax payment on the first $1 million is $345,800. You also pay 40% on the remaining $4.82 million, which comes to $1.928 million. That sum ($1.928 million), plus the base taxes of $345,800, means your total federal estate tax burden is $2,273,800.4
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 Arizona Tax Picture
When it comes to retirees, Arizona is a moderately tax-friendly state. Social Security is not taxed, but retirement accounts are fully taxed and pensions are taxed partially. Income tax rates in Arizona range from 2.50% – 2.98%. You can calculate your take home pay using our Arizona paycheck calculator.
The average effective property tax rate in Arizona is just 0.51%, well below the national average. Sales tax statewide is 5.6%, and local rates average 2.8%.
Estate Planning Tips
- Whether you’re working on estate planning or dealing with another major financial situation, you may want to consider enlisting professional help. That can come in the form of a financial advisor, but you’ll want to make sure you find the right financial advisor for your situation. 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.
- If your workplace sponsors a retirement plan, like a 401(k) plan, make sure to take into account any money in your account when you are planning your estate. You can use our 401(k) calculator to figure out what your savings will look like when you are getting ready to retire.
- There are a lot of different ways to plan your estate. One is to establish a trust, which will ensure that your assets are taken care of the way you want. Don’t make the mistake of thinking trusts are only for the super wealthy. No matter your financial status, a trust can be a useful tool.
- “Estate Tax Forms.” Arizona Department of Revenue. https://azdor.gov/forms/estate-tax-forms.
- 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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