What type of tax is levied on inherited property?

The correct answer is estate tax because this type of tax is specifically imposed on the value of a deceased person's estate before it is distributed to the heirs. When an individual passes away, their assets such as property, investments, and other valuable possessions are subject to this tax based on the total value of the estate. The estate tax serves as a way for the government to collect revenue from the wealth that is being transferred upon death.

In contrast, income tax applies to earnings generated during an individual’s lifetime, rather than transfers of wealth after death. Capital gains tax is relevant when an asset is sold for a profit, and this tax applies to the appreciation in value over time, which is not directly related to inheritance. Gift tax, on the other hand, is levied on the transfer of assets while the giver is still alive, making it distinct from estate tax, which deals with accumulated wealth following death. Understanding the nuances of these different types of taxes is crucial in tax planning and estate management.