Nebraska does not have an estate tax, though the federal estate tax will apply to Nebraskans if their estate is worth enough. Nebraska also has an inheritance tax to watch out for. This guide will take Cornhusker State residents through the information they need to know about the estate tax if they want their families to be secure and prepared for what will happen after they die. One way to take action on planning your estate is to hire a financial advisor to help you sort through the issues that come with the process. SmartAsset can help you find one with our free financial advisor matching service.
Nebraska Estate Tax
Nebraska has no estate tax. It is one of 38 states without one.
What Is the Estate Tax?
The estate tax is levied by governments on the estates of people who have recently died, before the assets in the estate are passed on to a person’s legally designated heirs. Sometimes referred to as the “death tax,” the estate tax only applies to estates with values exceeding a certain threshold, which is legally determined by whichever government is levying the tax.
Estate tax and inheritance tax are not the same. The inheritance tax is levied on money already passed from an estate to a person’s heirs. Beneficiaries are responsible for paying the inheritance tax on the assets they inherit.
Nebraska Inheritance and Gift Tax
Nebraska does have an inheritance tax. The rate depends on your relationship to your benefactor. If you leave money to your spouse, there is no inheritance tax. For other relationships, the following rates apply:
- Class 1: Parents, siblings, children, grandparents and any spouses/descendants of these relatives. These individuals pay 1% on any value over $40,000.
- Class 2: Aunts, uncles, nieces, nephews and any spouses/descendants of these relatives. These individuals pay 13% on any value over $15,000.
- Class 3: All other heirs. These individuals pay 18% on any value over $10,000.
Nebraska has no gift tax. The federal gift tax has a $15,000 exemption per year for each person to whom you give gifts. If you gift one person more than $15,000 in a single year, you must report that gift to the IRS. The amount exceeding the exemption counts against your $11.18 million lifetime gift tax exemption. It also reduces your federal estate tax exemption.
Federal Estate Tax
Though Nebraska has no estate tax, the federal government has one that may apply to Nebraska residents with large enough estates. The 2017 tax bill increased the federal exemption for 2018 to $11.18 million. The exemption will increase further in 2019 to $11.40 million. This exemption is portable for married couples, meaning when the first spouse dies they can give their exemption to the second spouse to use when they die. This means that, with the right legal steps, a married couple can protect up to $22.36 million of their estate.
An estate with value exceeding the exemption will owe estate tax. The tax has a series of ascending tax rates, with a top rate of 40%.
Here is an example: Say your estate is worth $19 million and you are not married. First, you take out the exemption of $11.18 million, leaving a taxable estate of $7.82 million. You are in the highest tax bracket, and you owe a $345,800 base payment on the first $1 million of your estate. You also owe 40% of the remaining $6.82 million, which comes to $2.728 million. Add the base payment to that figure and your total tax bill comes to $3,073,800 for this estate.
|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 $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Nebraska Tax Picture
Nebraska is a not a tax-friendly state for retirees. The state fully taxes withdrawals from retirement accounts like 401(k) plans and income from both private and public pension plans. Nebraska also taxes any Social Security income that the federal government taxes. The state has a progressive income tax, with rates ranging from 2.46% to 6.84%.
Nebraska’s property taxes are very high. The average effective rate is 1.83%, the seventh highest in the nation. There is a homestead exemption for people age 65 and older who have an annual household income of less than $41,101 for single filers or $49,601 for married couples. To claim an exemption on a home, the home also cannot have a value of more than $95,000 or 200% of the average home value in your county. The exemption will cover between 100% and 10% of the home value, based on income. It covers 100% for households with incomes of less than $28,201 for single-filers and $33,101 for married couples. The exemption is limited to a maximum of $40,000 or the average home price in your county, whichever is higher.
The state has a sales tax of 5.50%. With local rates, the average total sales tax in the state is 6.89%.
Estate Planning Tips
- Planning your estate takes a lot of time and requires strict attention to detail. As such, it may make sense to find a financial advisor to help you through it. SmartAsset can help you find one with our free financial advisor matching service. You answer a few questions. We match you with up to three advisors, all fully vetted and free of disclosures. After talking with each advisor, you can decide if one of them is someone you’d want to work with.
- One common mistake when writing a will is to overlook state-specific rules. Each state has its own rules for will writing, so talk with your advisor and check local laws to make sure you’re in the clear.
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