What You Need To Know About Inheritance Tax and Out Of State Vacation Homes

Many New Jersey residents own vacation homes in the Poconos. They get cool mountain air, peaceful lakes—and, unfortunately inheritance taxes when the NJ owner dies and leaves the family vacation home to the kids. Generally speaking, New Jersey residents do not pay estate tax to the state of NJ if their estate is less than $675,000, and don’t pay inheritance tax to the state of NJ if they leave their estate to their spouse, children, parents or grandchildren. But that vacation home in the Poconos (or any real property anywhere in Pennsylvania) is taxed by the commonwealth of Pennsylvania. Unfortunately, this comes as a surprise to many personal representatives, who assumed that the estate was off the hook for taxes.

If you are a personal representative of a New Jersey estate that owns real property in Pennsylvania, here are the steps you need to take:

  1. Obtain a certified copy of the Will from the Surrogate of the county in New Jersey where the Will was probated.
  2. File the certified copy of the Will with the Register of Wills in the Pennsylvania county where the real property is located. This is called opening an “ancillary probate” proceeding. The estate will get assigned a Will number and you will be issued a short certificate so you can transfer the Pennsylvania property out of the estate.
  3. File a Nonresident Decedent Inheritance Tax Return, Form 1737-a

If you pay the tax in the first 3 months from the date of death, you get a 5% discount, and if you pay more than 9 months after death, you are assessed a penalty. So it pays to do this sooner rather than later.

If you own a vacation home in another state, you can avoid inheritance taxes by transferring the property to a NJ trust during your life. But that’s another topic for another post…