There is no estate tax in North Dakota. The federal government has an estate tax, though, and it may apply to North Dakotans if their estate is of sufficient value. This guide is for Roughrider State residents who are looking for the information needed to effectively plan their estate and make sure their assets are protected and their families are prepared when they die. One of the best ways to prepare for the estate tax and other potential estate planning pitfalls is to hire a financial advisor. SmartAsset can help you find one with our free financial advisor matching service.
North Dakota Estate Tax
North Dakota has no estate tax. It is one of 38 states in the nation that does not have one.
What Is the Estate Tax?
State and federal governments levy the estate tax on estates of people who have recently died. The money and assets in the estate are taxed before they are passed on to the person’s designated heirs. The estate tax, sometimes referred to as the “death tax,” only applies to estates that reachr a certain threshold. The government levying the estate tax legally determines this threshold.
Estate tax and inheritance tax are not the same thing. Inheritance tax applies to an inheritance after an heir receives it.
North Dakota Inheritance and Gift Tax
There is also no inheritance tax in North Dakota. You should know that another state’s inheritance tax may apply, however, if your benefactor lived in a state that does have one. In Kentucky, for instance, the inheritance tax applies to all in-state property, even if the inheritor lives out of state. Check local laws if you receive an inheritance from someone from another state. You don’t want to end up missing a tax payment you should have made.
North Dakota also has no gift tax. There is a federal gift tax with an exemption of $15,000 per gift recipient per year. This means you can give up to $15,000 to as many discrete individuals as you want with no gift tax implications. If you give any one person more than $15,000, however, you must report the gift to the IRS. The excess counts against your lifetime gift tax exemption and reduces your federal estate tax exemption.
Federal Estate Tax
Just because North Dakota doesn’t levy an estate tax doesn’t mean there’s no way you’ll have to pay an estate tax. The federal government has an estate tax that may apply to you if your estate is worth enough. The federal estate tax exemption is $11.18 million for 2018 and will increase to $11.40 million for 2019. The exemption is portable, allowing one spouse to pass it to the other to be used when the second spouse dies. A couple can protect up to $22.36 million with the right legal maneuvers.
Estates that are worth more than the exemption are subject to a progressive tax. The top rate is 40%.
Here’s how it works: Consider an estate worth $19 million, where the deceased was not married. Once you take out the $11.18 million exemption, you’re left with a taxable estate of $7.82 million. This puts the estate in the top tax bracket. The base taxes on the first $1 million are $345,800. There’s a 40% tax on the remaining $6.82 million, which totals $2.728 million. Add back the base payment and the total estate tax burden comes to $3,073,800.
|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 North Dakota Tax Picture
North Dakota has moderately tax-friendly policies for retirees. The state fully taxes withdrawals from retirement accounts like 401(k) plans. It only partially taxes Social Security benefits and public and private pension income. The state taxes any Social Security income that the federal government taxes. You can generally determine if your Social Security income is taxed federally by adding half of your Social Security income to all other sources of income. If the total is higher than $25,000 ($32,000 for joint-filers), then you’ll pay taxes on some of your Social Security income. For pension plans, there is a deduction for some taxpayers. The deduction is $5,000 minus all Social Security benefits. If you earn more than $5,000 in Social Security, there is no deduction. North Dakota’s income tax rates are relatively low, ranging from 1.10% to 2.90%.
The average effective property tax rate in North Dakota is 1.05%, placing it near the middle of the pack compared to other states. There is a homestead credit for homeowners who are at least 65, own and occupy their homes and have a total income of less than $42,000 and total assets (including their home) worth $500,000 or less. Income levels determine the amount of the credit. It can range as high as $5,625, and can include 100% of property tax.
North Dakota’s sales tax is 5%. Cities and counties can collect up to 3.50%. The statewide average is 6.78%.
Estate Planning Tips
- Estate planning can take a lot of time and energy. If you find yourself pulling out your hair trying to do it yourself, consider finding a financial advisor to help make the whole process a bit easier. SmartAsset can help you find one with our free financial advisor matching service. You answer a few questions about your finances, and we match you with up to three advisors in your area, all fully vetted and free of disclosures. You talk to each advisor and see if one of them seems like someone you’d like to work with.
- A lot of people need estate planning but don’t realize it. Even if you’re young, make sure your family is ready for anything.
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