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What is the Federal estate tax deduction?

If you paid federal estate tax on money you inherited and that you included in your gross income, you may be able to take the federal estate taxes deduction.

he IRS permits you to deduct the portion of federal estate tax that you paid on money that the deceased person would have received as income had they not died. To calculate your estate tax deduction, you must determine the portion of estate tax you paid that qualifies for the deduction, and your portion of the deductible tax.

If you are eligible for this tax deduction, you must:

  • Claim it in the same tax year in which the deceased person would have received the income.
  • Itemize your deductions on Schedule A (Form 1040).

This deduction is not subject to the 2% limit.

You can learn more about this deduction in IRS Publication 559.

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