What Are the Tax Implications of Successions in Louisiana?

When going through a succession in Louisiana, it’s important to ask, “What are the tax implications of successions in Louisiana?” State and federal tax laws may impact the distribution of assets and require careful planning. Knowing these obligations in advance can protect both the estate and its beneficiaries.

Relevant Taxes in Louisiana Successions

Louisiana’s inheritance tax was repealed, meaning beneficiaries no longer pay state-level inheritance taxes. However, other types of taxes could apply, depending on the circumstances, including:

• Federal estate tax. This applies to estates exceeding the federal exemption limit, expected to be around $14 million in 2025. Estates above this threshold are taxed significantly, which could potentially affect large estates. Beneficiaries inheriting high-value property may need to plan for this tax. However, due to the average home value of Denham Springs being $188,700, it is usually not an issue.
• Income tax on inherited property. Beneficiaries do not pay taxes on inherited property itself, but they do pay taxes on revenue earned from that property. This includes rental income or dividends. Managing this income responsibly can help prevent penalties. Louisiana’s state income tax rates for 2025 are relatively low compared to other states, but they still require careful accounting and reporting.
• Capital gains tax. Inherited real estate is taxed on a stepped-up basis, valued at its fair market value on the decedent’s date of death. Selling the property shortly after inheritance can minimize taxable gains. Getting the property appraised can provide an accurate valuation so you can calculate its capital gains correctly.
• Retirement accounts. Non-spouse beneficiaries must withdraw inherited IRA or 401(k) funds within 10 years under the SECURE Act, with distributions taxed as ordinary income. This tax treatment may require strategic withdrawal planning. Life insurance proceeds generally remain tax-free when they are directly paid to beneficiaries, but this could increase the estate tax if it is directed to the estate itself.

All these assets require a dedicated strategy to reduce the amount of taxes owed. Penalties for missing tax deadlines can result in up to 25% in fees for late filing.

Managing Succession Tax Obligations

Executors should gather financial records, like bank statements and property deeds, to account for all the assets in the estate. In Louisiana, IRS Form 706 must be filed for estates exceeding the exemption limit, and IRS Form 1041 should be completed for income earned by the estate.

Accurate appraisals can verify a proper stepped-up basis valuation for the real estate. Parish assessors, like the East Baton Rouge Parish Assessor, can assist with property assessments. The timely completion of these steps helps avoid penalties and complete tax reports accurately. Legal guidance can provide additional security when handling complex estates.

Common Tax Issues in Louisiana Successions

Beneficiaries may overlook the stepped-up basis rule when selling inherited property, leading to inaccurate capital gains reporting. Executors often miss allowable decisions for expenses, such as funeral costs, legal fees, and succession administration costs.

Missing important deadlines, like the IRS Form 706 filing deadline, can also result in penalties. Estate representatives should remain diligent to prevent these mistakes. Staying organized and seeking guidance can reduce the risk of errors.

Another concern includes a potential change in the estate value threshold for federal estate tax. The Tax Cuts and Jobs Act of 2017 dramatically increased the exemption threshold. This exemption could potentially decrease to around $7 million after 2025 if the Tax Cuts and Jobs Act provisions expire without congressional action. This makes tax planning especially important for wealthier Louisiana residents.

Why Do I Need an Attorney?

A tax attorney can help with preparing and filing the necessary tax documents and identifying eligible deductions. For high-value estates, legal guidance can minimize exposure to federal estate taxes through strategies such as gifts or trust creation.

Attorneys can provide support for complex estates involving business interests, multiple properties, or significant financial holdings. Legal professionals also help beneficiaries meet deadlines and comply with tax rules.

An attorney familiar with Louisiana law can recommend tax-saving strategies, tailored to local conditions. For residents of areas prone to natural disasters, like coastal parishes vulnerable to hurricanes, attorneys can also address valuation challenges for damaged properties.

Denham Springs experiences over twice the national average of thefts, at 5,644.9 thefts per 100,000 residents, and an attorney can also guide you on legal measures concerning stolen assets.

FAQs

Do You Pay Taxes on Inherited Property in Louisiana?

You do not pay taxes on inherited property in Louisiana. Inheritances are not considered taxable income under Louisiana state law. However, any income the inherited property generates, including rental income, is taxable. Beneficiaries should keep detailed records to report this income correctly. There could also be potential tax obligations on the federal level, depending on the situation.

What Are the Tax Rules for Selling Inherited Property in Louisiana?

The tax rules for selling inherited property in Louisiana include the potential for capital gains taxes. The property’s value is “stepped up” to its fair market value as of the date of the decedent’s death. This adjustment can reduce taxable gains if the property is sold shortly after inheritance. For example, a Baton Rouge home valued at $300,000 at death but sold for $320,000 would only need taxes paid on the $20,000 increase due to capital gains.

Is There an Inheritance Tax Exemption in Louisiana?

There is no inheritance tax exemption in Louisiana because there is no inheritance tax to begin with. Louisiana repealed its state inheritance tax. Since that time, beneficiaries in Louisiana no longer pay inheritance tax on assets received through a succession. However, federal taxes may still apply for estates exceeding the federal exemption limit.

What Tax Deductions Are Available When Managing a Louisiana Succession?

The tax deductions that are available when managing a Louisiana succession include succession-related expenses, like funeral costs, legal fees, and administrative expenses. These deductions are reported on IRS Form 706 and can reduce the taxable value of the estate. Reviewing these forms with an estate and tax professional can make sure these deductions are accurately claimed.

Preserve What Matters Most

The tax implications of a Louisiana succession can create serious financial risks if overlooked. By gaining a clear understanding of these tax rules, you can minimize complications and reduce the chances of costly mistakes.  Schedule a consultation with Goode Tax and Estate Planning Law Group, LLC, to stay informed and protect the estate’s value.