New Jersey Inheritance Tax

New Jersey has both an inheritance tax and an estate tax. The inheritance tax is imposed on the transfer of property to certain people who aren’t close relatives. The amount of the tax is based on how closely the inheritors and deceased person were related and how much each inheritor receives.

Inheritance tax is imposed on the transfer of property from the estate of:

• a New Jersey resident, or
• a nonresident who owned real estate or tangible property located in New Jersey.

Who Must Pay New Jersey Inheritance Tax

New Jersey groups inheritors into groups, based on their family relationship to the deceased person.

Class A beneficiaries are exempt from the inheritance tax. This class includes the deceased person’s:

• spouse, domestic partner, or civil union partner
• parent or grandparent
• child (biological, adopted, or mutually acknowledged)
• stepchild (but not stepgrandchild or great-stepgrandchild)
• grandchild or other lineal descendant of a child

Class B was deleted by law.

Class C includes the deceased person’s:

• brother or sister
• child’s spouse or  civil union partner
• child’s surviving spouse or  civil union partner

These inheritors don’t pay any inheritance tax on the first $25,000 they inherit. After that, the rates are:

• Next $1,075,000: 11%
• Next $300,000: 13%
• Next $300,000: 14%
• Over $1,700,000: 16%

Class D includes everyone who doesn’t fall into another category. The tax rates for this group are:

• First $700,000: 15%
• Over $700,000: 16%

Class E beneficiaries are also exempt from inheritance tax. This group includes the State of New Jersey or any of its political subdivisions for public or charitable purposes, an educational institution, church, hospital, orphan asylum, public library, and certain other nonprofit agencies.

Other Exemptions

Some transfers of property at death are exempt from the tax no matter who the recipient is. In New Jersey, there is no tax on:

• Transfers of less than $500
• Life insurance proceeds paid to a named beneficiary
• Charitable transfers for the use of an educational institution, church, hospital, public library, etc.
• Payments from the New Jersey Public Employees Retirement System, the New Jersey Teachers’ Pension and Annuity Fund, and the New Jersey Police and Firemen's Retirement System
• Federal Civil Service Retirement benefits payable to a beneficiary other than the estate
• Annuities payable by the U.S. government under the Retired Serviceman’s Family Protection Plan or the Survivor Benefit Plan to a beneficiary other than the estate

The Inheritance Tax Return

The return (Form IT-R, if the deceased person was a New Jersey resident) must list all of the deceased person’s property and its value; this is called the gross estate. If the deceased person was a New Jersey resident, the return lists all property that the person owned and its value as of the date of death. For a nonresident, only real estate and tangible items actually located in New Jersey are included. Count everything, not just the property that goes through probate. For example, include joint tenancy property, IRAs, and property that passes through a living trust instead of a will.

The next step is to subtract liabilities of the estate, to arrive at the amount of the net estate. Examples of deductions include:

• debts the deceased person owed
• mortgages on estate property
• taxes accrued before death
• funeral expenses
• probate attorney fees and court costs

Filing the Return

The personal representative (executor or administrator) is responsible for filing an inheritance tax return.  Just one return is filed, even if several inheritors owe inheritance tax.

The return must be filed, and any tax paid, eight months from the date of death. Interest will accrue on any unpaid tax. You can ask for an extension of up to four months to file the return, but an extension doesn’t affect your obligation to pay the tax on time.

The tax return is filed with the New Jersey Division of Taxation.  When you file it, attach copies of:

• the will, if any, and
• the deceased person’s last full year’s federal income tax return.

Liens on Estate Property

Until the inheritance tax is paid and the state issues a tax waiver, certain property can’t be transferred out of the estate. But if no tax is due, must you still file an inheritance tax return just to get the waiver, as proof that you may transfer the property? There may be a shortcut.  If no tax is due, a Class A beneficiary can file a Request for Real Property Tax Waiver. If the waiver is granted, you won’t have to file a formal inheritance tax return.

Forms, Instructions, and Legal Advice

You can get New Jersey inheritance tax return forms, instructions, and current tax rates from the state Division of Taxation website. You’ll also want to get expert advice on filling out the tax return from a local attorney who’s experienced with the state's inheritance tax rules. It can be difficult to figure out the value of everything a person owned, especially when you’re dealing with jointly owned assets or such assets as annuities or co-ops.