Question: Is inheritance taxable? How would you report it? What is an inheritance tax?

Answer: A handful of states impose an inheritance tax, but Hawaii does not. Neither does the Internal Revenue Service.

"Generally, an inheritance tax is imposed on the beneficiary receiving property from the estate of a decedent," explained Mallory Fujitani, spokeswoman for the state Department of Taxation. It is based on the value of the property received.

The state has not had such a tax since 1983.

The inheritance tax, set forth in Chapter 236 of the Hawaii Revised Statutes, was repealed that year, Fujitani said, going on to explain a series of changes that resulted in the current state estate tax.

Warning: It’s confusing. But the good news is that most people don’t have to worry about paying any estate tax, because the exclusion amount is more than $5 million for both the state and IRS.

Fujitani explained that initially the state inheritance tax was replaced with a federal estate tax credit for death taxes paid to the state. (See Chapter 236D, "Estate and Transfer Tax Reform Act of 1983" — 1.usa.gov/1IgkoRG.)

Generally, an estate tax is imposed on the value of property owned by a decedent at the time of the decedent’s death, with the tax paid for by the decedent’s estate, Fujitani said.

"This tax was commonly referred to as the federal estate ‘pickup tax,’ whereby the state estate tax was set at the maximum state tax credit allowed for the decedent for federal tax purposes," she said.

However, under the Economic Growth and Tax Relief Reconciliation Act of 2001, the federal government phased out the state tax credit given for death taxes paid.

That meant from 2005 to May 2010, there was no estate tax or inheritance tax in Hawaii, Fujitani said. In May 2010 the state adopted a revised estate tax.

It brought back the estate tax by freezing the tax as it had existed in 2001, prior to the enactment of the federal Economic Growth and Tax Relief Reconciliation Act, but with an exclusion amount of $3.5 million, Fujitani said.

"However, this version was incomplete," so the tax was "overhauled," she said, as laid out in Chapter 236E of the Hawaii Revised Statutes in 2012: "Estate and Generation-Skipping Transfer Tax."

(See 1.usa.gov/1IgmVvf.)

"This new estate tax continues to use the federal estate tax as a base but is now independent of the federal estate tax and has its own tax rates," Fujitani said.

Of federal estate taxes, the IRS says, "Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return."

A federal filing is required only for estates with combined gross assets and prior taxable gifts exceeding $5,250,000 in 2013, $5,340,000 in 2014 and $5,430,000 in 2015.

Hawaii adopted the federal exclusion amounts, reduced by the amount of any prior taxable gifts made, Fujitani said.

Carpenter Bees

Reader "Souza of Kailua" has another tip for homeowners plagued by carpenter bees (see bit.ly/ 1Hg0dTS): "WD-40 works like a champ. I have been using it for years on my exterior Canec ceiling eaves, which the bees love to bore into. It lasts as a retardant as well."

He notes that "there are a lots of Canec-ceiling houses in Kailua, especially the tract homes in Enchanted Lake, of the late 1950s/early 1960s vintage. Such bees have an easy time making nesting pukas in them."

Mahalo

Deepest gratitude to the kind gentleman who found my wallet in the Don Quijote Kaheka Street parking garage in February. He so kindly left it at Central Pacific Bank in McCully. Mahalo also to the bank manager who called me. May that gentleman be forever blessed. — C.N.

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Write to “Kokua Line” at Honolulu Star-Advertiser, 7 Waterfront Plaza, Suite 210, 500 Ala Moana Blvd., Honolulu 96813; call 529-4773; fax 529-4750; or email kokualine@staradvertiser.com.