Menu
There is an underused Pennsylvania Inheritance Tax Exemption for Family-Owned Businesses. Can you take advantage of this?
Pennsylvania provides an inheritance tax exemption for interests in qualified family-owned businesses, recognizing the importance of preserving family enterprises across generations. This exemption can significantly reduce the tax burden on heirs, provided specific conditions are met.
Key Ǫualifications:
- Nature of the Business:
The business must be active and for-profit, including farms, corporations, partnerships, or sole proprietorships.
- Ownership Requirements:
- The decedent must have owned at least 50% of the business at the time of death.
- Ownership can also qualify if the decedent owned 25% but shared control with family members who collectively held at least 50% of the business.
- Family Relationship:
The inheriting individuals must be closely related to the decedent, such as children, grandchildren, or siblings. Ǫualifying family members has recently been expanded.
- Business Continuation:
The heirs must agree to maintain ownership and continue operating the business for at least seven years after the decedent’s death. This period ensures the business remains active and productive.
- Timely Filing:
Heirs must file specific documentation, including Pennsylvania’s REV-1197 form, within nine months of the decedent’s death. This filing is essential for claiming the exemption.
- No Transfer or Sale:
Selling or transferring the business within the seven-year period can nullify the exemption and trigger inheritance tax recapture liabilities.
Benefits of the Exemption
Ǫualified family-owned businesses can completely avoid the inheritance tax, which would otherwise range from 4.5% to 15%, depending on the heir’s relationship to the decedent. This exemption helps maintain family businesses and reduces the financial strain of succession.
Proper planning and adherence to Pennsylvania’s specific guidelines can help families benefit fully from this important exemption.
