Does Out of State Property Count Towards the Massachusetts Estate Tax Exemption?

The current Massachusetts estate tax exemption is $2 million dollars. This means that if you are a resident of Massachusetts and pass away with over this $2 million dollar exemption amount in total assets, your estate will owe money to the Commonwealth. For residents of Massachusetts with out of state property such as a ski house in Maine, or a condo in Florida, this presents a very important question. Does my out of state property count towards my Massachusetts estate tax exemption?

A Brief History of the Massachusetts Estate Tax Exemption Amount

The current Massachusetts estate tax exemption is $2 million dollars. For decedents dying on or after January 1, 2023, Massachusetts lawmakers increased this exemption from $1 million to $2 million. Any potential estate tax that is due is calculated based off of the decedent’s total gross estate, after any qualifying deductions (such as funeral expenses, administration or attorney expenses, etc.).

When the exemption amount changed in 2023, the reform also changed the law in relation to how out of state real estate was treated. Out of state real estate became a countable asset, which was previously exempt from any estate tax calculations. While the 2023 reform did not explicitly state that out of state real estate was a countable asset for estate tax purposes, instead the reform was silent on the matter, creating an ambiguity for attorneys and families across the Commonwealth.

However, this law reverted back in late 2024 when a new reform was passed. This is the current law which states clearly that out-of-state real estate is not included in a decedent’s taxable estate for estate tax purposes in Massachusetts.

The 2024 Clarification and Current Standard

In September 2024, the Massachusetts Legislature addressed the ambiguity in a supplemental budget law. The 2024 amendment made it explicit: real estate and tangible personal property located outside of Massachusetts are excluded from the decedent’s gross, taxable estate and are not counted towards the exemption amount for decedents domiciled in Massachusetts.

This helps clarify which assets are included in your taxable estate, and how proper estate planning can help you plan for the future if you believe you may die with greater than $2 million dollars in countable assets. The experienced attorneys at Lane, Lane & Kelly can work with you to minimize, if not eliminate, any potential estate taxes due to the Commonwealth through strategic planning.

The 2024 change makes clear that:

• Your Massachusetts estate tax is based only on any real estate that you own in the Commonwealth of Massachusetts, and nowhere else;
• Your taxable estate also includes intangible assets (such as bank accounts, retirement accounts, life insurance policies, stocks, etc.) regardless of the custodian or where the assets are controlled from;
• Any tangible personal property that is located in another state is not included in your estate. For a full overview outlining the difference between tangible and intangible property, read our full legal blog here;
• The previous concern that owning a vacation home or investment property located elsewhere would push your estate into a higher tax bracket has been eliminated.

Example Scenario & Potential Tax Due

Let’s say you own a house valued at $800,000, and have $1,000,000 dollars in assets between your bank accounts and several retirement accounts (intangible assets). This means you have a gross estate valued at $1,800,00 million dollars.

You also have a ski condo in New Hampshire that is valued at $600,000. Prior to the 2024 reform, this vacation home would have been included in your gross estate, pushing your total estate above the $2 million dollar exemption amount. However, under the current law, this ski condo would not count towards your gross estate. If you had no other assets other than the real property and intangibles totaling $1,800,000, then your estate would not owe any estate taxes upon your death.

This is a huge estate planning advantage for Massachusetts residents that own property elsewhere. Estate taxes can be significant, and substantially reduce the overall value of an estate that would otherwise be left to the beneficiaries or legal heirs. For example:

• If a decedent dies with just over the exemption amount, with total assets equaling $2,100,00, the Massachusetts estate tax owed would be roughly $7,200.
• If a decedent dies with total assets equaling $4,000,000, the Massachusetts estate tax owed would be roughly $180,100.
• If a decedent dies with total assets equaling $6,000,000, the Massachusetts estate tax owed would be roughly $411,200.

Contact Lane, Lane & Kelly to Review Your Estate Plan Today

The 2024 updates in Massachusetts provides welcome clarity for all residents of the Commonwealth. For Massachusetts residents, real estate and tangible property located outside Massachusetts is excluded from the computation of the Massachusetts estate tax.

The change protects Massachusetts residents who own vacation or investment properties in other states from unexpected tax exposure. That said, having a thorough estate plan can help you and your loved ones save substantial time and money, regardless of whether you are currently over or under the $2 million dollar exemption amount.

The Attorneys at Lane, Lane & Kelly have experience helping Massachusetts residents minimize, or even eliminate, any potential estate taxes due through comprehensive estate planning. Whether you own property outside of Massachusetts or not, it is always a good idea to meet with an attorney to review your assets, calculate your taxable estate, and review your estate planning goals. Contact our office today to get started with a free consultation.