Is Out-of-State Property Included in Your Massachusetts Estate?
Massachusetts residents who own real estate or tangible personal property outside Massachusetts may be able to exclude that property from the Massachusetts estate tax calculation. However, eligibility depends on the specific facts and circumstances, including how the property is owned, characterized, and applied under state law, and it may still be included in the federal gross estate.
How Massachusetts Estate Tax Rules Apply to Out-of-State Property
The Massachusetts estate tax laws changed for deaths occurring on or after January 1, 2023, regarding out-of-state property.
On September 16, 2024, Massachusetts Governor Maura Healey signed legislation, Bill H.4799 (malegislature.gov), which retroactively clarified the state’s estate tax rules for deaths occurring on or after January 1, 2023. The law allows certain out-of-state real estate and tangible personal property to be excluded when calculating the Massachusetts estate tax.
The law reads as follows:
“If the federal gross estate of a person includes real or tangible personal property located outside of the commonwealth at the time of death, the credit shall be determined based on the value of the federal taxable estate after such estate is reduced by the value of such real or tangible personal property located outside of the commonwealth.”
The application of this provision may depend on interpretation by Massachusetts tax authorities and the specific facts of the estate.
What This Means for Massachusetts Residents
For Massachusetts residents who own real estate in another state, such as a vacation home in Florida, the Massachusetts estate tax may be calculated without including the value of that property. This treatment is not automatic and may be subject to interpretation, documentation requirements, and review by state tax authorities.
In practical terms, this means the value of qualifying out-of-state real estate and tangible personal property may be removed before calculating the Massachusetts estate tax in certain circumstances, and not all property will qualify.
It’s important to note that this exclusion applies only when calculating the Massachusetts estate tax and does not remove the property from the federal gross estate.
How Does This Estate Tax Law Affect Property Held Through a Trust or LLC?
Ownership structure plays an important role in how property is treated for estate tax purposes.
Placing real estate into certain entities can change how the asset is characterized for estate tax purposes. In some cases, out-of-state real estate may be converted from tangible property into an intangible ownership interest.
Because intangible property is generally included in the Massachusetts taxable estate regardless of location, holding property through certain trusts, LLCs, or other entities could limit, or eliminate, the benefit of the out-of-state property exclusion.
Property owners should consult qualified tax and legal professionals to understand how their ownership structure may affect estate tax treatment.
Potential Considerations for Prior Estates
Because the legislation applies retroactively to January 1, 2023, Massachusetts residents who died in 2023 or later and included qualifying out-of-state property in their filings may wish to review their returns.
In limited circumstances and subject to applicable filing requirements, timing rules, and state review, some estates may be eligible for a refund.
Additional information can be found within the Massachusetts Estate Tax Guide and applicable Massachusetts Department of Revenue guidance.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment or tax advice from Savant. Please consult your investment or tax professional regarding your unique situation.