Understanding Massachusetts Estate Tax Laws
Rules and Exemptions for the Massachusetts Estate Tax
Massachusetts is one of just 12 states that collects a state estate tax as of 2019. People handling the estates of Bay State residents and nonresidents who own real estate or tangible personal property here are faced with tax laws that can be tricky.
Most states, as well as the federal government, tax only the value of an estate over a certain threshold, known as an exemption. Not Massachusetts. This state taxes estates with values over a much lower threshold.
When Is Your Estate Subject to the Estate Tax?
Taxes must be paid to the state before any assets can be passed on to beneficiaries when an estate is worth more than the exemption amount of $1 million.
The Massachusetts tax applies to the entire value of the estate, not just the portion that's above the $1 million exemption threshold. Any value over $40,000 is taxed. There are no exceptions, even if that value boils down to one single dollar.
An estate worth $1,000,001 would have to file a tax return, but would not pay the tax only on that single dollar that tops the limit. It would owe tax on $960,001 in value.
The exclusion has been set at $1 million since 2006.
What Is the Massachusetts Estate Tax Rate?
The Massachusetts tax rate ranges from 0.8% to 16% as of 2019. The 0% applies to values of $1 to $40,000. The 16% rate hits taxable estates worth $10.04 million or more.
The same rules apply to nonresidents' estates.
The value for the entire estate is calculated on assets such as the value of home or homes, life insurance, bank accounts, investment accounts, retirement accounts, and collectibles—basically anything of value the decedent owned.
The same applies if an estate includes real estate or tangible personal property located in the state, even if the decedent isn't a resident of Massachusetts.
What Tax Forms Must Be Filed?
The personal representative or executor of an estate that is subject to the Massachusetts tax must submit IRS Form 706, the federal estate tax return, even if no federal tax is owed to the IRS. The estate representative can then prepare the Massachusetts Estate Tax Return, Form M-706, when the federal return is completed, and should include it with the Massachusetts return when filing.
You might be required to submit a Federal Closing Letter to the Massachusetts Department of Revenue (DOR) within 60 days if you do have to file Form 706 because federal taxes are also due. This would include the federal letter of acceptance and potential line adjustments. You would then send copies of federal changes via an amended Form M-706.
The representative will also need a Massachusetts Nonresident Decedent Affidavit Form M-NRA for the estate of a deceased nonresident.
Are Transfers to a Surviving Spouse Taxable?
The good news is that outright transfers to a surviving spouse who is a U.S. citizen are not taxable. The tax laws stipulate an unlimited deduction for transfers to spouses, either lifetime gifts or bequests at death. The tax comes won't come into play until the surviving spouse passes away, assuming they haven't remarried and transfer their entire estate to their current spouse.
Transfers to spouses who are not U.S. citizens have some limitations, however. For example, outright gifts to non-U.S. citizen spouses are subject to a ceiling of $155,000 as of 2019 at the federal level. This exemption amount is indexed for inflation so it can be expected to increase periodically.
When Are the Estate Tax Return and Tax Payment Due?
The Massachusetts estate tax return must be filed within nine months of the date of death. Any tax due must be paid within that time frame as well.
You can apply for an extension of time by filing Form M-4768, but the extension is considered void and you'll incur penalties for filing late if less than 80% of the total amount due is paid at the time you file.
Where Are the Estate Tax Return Filed and Tax Payment Made?
You can make a check payable to the Commonwealth of Massachusetts and enter the decedent’s full name and Social Security number in the memo portion of the check. The representative of the estate who signs the return is personally liable for payment of any tax that does not get paid. The return and the tax payment should be sent to:
Massachusetts Estate Tax Unit
P.O. Box 7023
Boston, MA 02204
When Is a Release of Massachusetts Estate Tax Lien Required?
A release of an estate tax lien is required for all Massachusetts real estate in which the decedent had a stake at the time of death. These types of liens are also required on real estate located in Massachusetts that an individual transferred under certain circumstances before passing.
An executor must file a Certificate Releasing Estate Lien and an affidavit to release the line. The certificate is available on the Massachusetts Department of Revenue website. Navigate to "521.1. In General" for different requirements for deaths that occurred before or on Jan. 1, 2003 and on or after Jan. 1, 2003.
A copy of the deed or certificate of title, and the purchase and sale agreement or mortgage commitment if any, should also be provided.