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There is no federal inheritance tax in the United States. Inheritance taxes, often confused with estate taxes, are levied on the beneficiaries of an estate rather than the estate itself. The rules and rates can vary significantly depending on where the deceased person lived. In some cases, inheritance taxes depend on location as only a handful of states impose this tax. The relationship between the deceased and the beneficiary can also influence the tax rate. Closer relatives often receive more favorable treatment.
A financial advisor can help you understand how inheritance and other sources of income may affect your tax situation.
What Is an Inheritance Tax?
An inheritance tax requires beneficiaries to pay taxes on assets and property they’ve inherited from someone who has died. Sometimes people conflate an inheritance tax with the term “estate tax.” Both are forms of so-called death taxes, but they’re two different types of taxes. By definition, estate taxes are taxes on someone’s right to transfer ownership of their entire estate to others. The most important factor here is property value.
If the value of the transferred assets exceeds the federal estate tax exemption (which is $15 million for tax year 2026 and $13.99 million for tax year 2025), the property can face a federal estate tax. 1 States have their exemption thresholds as well. Estate taxes are deducted from the property that’s being passed on before a beneficiary claims it.
In contrast, inheritance taxes focus on the heir who has inherited the property. While estate taxes can occurs at the state and/or federal level, only states collect inheritance taxes.
As of 2026, only five states impose an inheritance tax, down from six in recent years. That’s because Iowa fully repealed its inheritance tax for deaths occurring on or after Jan. 1, 2025, after a few years of slowly phasing it out. So if a person lived in any of the following states, your inheritance might be subject to taxes:
- Maryland
- Kentucky
- New Jersey
- Pennsylvania
- Nebraska
Living outside one of these states does not necessarily mean an inheritance is exempt. The applicable rules can depend on the decedent’s residence and the location and type of inherited property.
Who Has to Pay an Inheritance Tax?
Again, there are only five states with inheritance taxes. Overall, inheritance tax rates vary based on the beneficiary’s relationship to the deceased person.
Spouses are automatically exempt from inheritance taxes. That means that if your husband or wife leaves you a condo, you won’t pay an inheritance tax at all. This holds true even for property located in one of the states mentioned above. Since the Supreme Court’s ruling, the same rule applies to same-sex spouses.
Children and grandchildren who receive an inheritance aren’t taxed either if the deceased person lived in any of these states: New Jersey, Kentucky or Maryland. All other relatives, as well as children and grandchildren receiving property from Pennsylvania and Nebraska, may owe taxes.
Also, keep in mind that states have different rules regarding how much of an inheritance is automatically exempt from tax. For example, a sibling of a person in New Jersey can inherit up to $25,000 without owing inheritance tax on the property. For inheritances above $25,000, they’ll pay a tax that ranges between 11% and 16%.
How Much Is the Inheritance Tax?
There is no federal inheritance tax. Federal estate tax rates range from 18% to 40%, while each state with an inheritance tax has its own rates. Here’s a breakdown of each state’s inheritance tax rate ranges:
Rates and tax laws can change from one year to the next. For example, Indiana once had an inheritance tax, but repealed it in 2013.
How to Avoid and Minimize Inheritance Taxes
Besides getting married or convincing your family members to move, there are other steps to avoiding an inheritance tax.
One option is convincing your relative to give you a portion of your inheritance money every year as a gift. In 2026, an individual can generally give another person up to $19,000 during the year without using any of the donor’s lifetime federal gift and estate tax exemption or having to file a federal gift tax return, provided the gift qualifies for the annual exclusion. Married couples can generally use a combined $38,000 of annual exclusions per recipient if each spouse makes $19,000 of qualifying gifts. 7
As an alternative strategy, you could ask your loved one to set up an irrevocable trust. Depending on how the trust is structured and applicable state law, transferring assets to an irrevocable trust may affect whether those assets are subject to inheritance tax.
When a trust is revocable, whoever put their assets into it can take them back out if necessary. With an irrevocable trust, the person creating it generally gives up the ability to freely revoke the trust and take back its assets, although the exact rights retained depend on the trust terms and applicable law.
An inheritance tax can influence your overall finances. Try our income tax calculator to model how different income scenarios could affect your tax outcome.
Inheritance Tax Checklist for Beneficiaries
Understanding whether you owe inheritance tax starts with identifying the state rules that apply to the transfer. The five states with an inheritance tax use different exemptions, beneficiary classifications and rates, so the same inheritance can produce different tax results depending on where the decedent lived, where certain property is located and how the beneficiary was related to the decedent.
The type of property also matters. Cash, investments, real estate and business interests can be subject to state inheritance tax rules, while specific exemptions may apply to other assets or beneficiaries. Inherited retirement accounts can create a separate federal income tax issue when taxable distributions are taken, even when the inheritance itself is not subject to an inheritance tax.
Beneficiaries who receive appreciated property should also determine their tax basis. For federal income tax purposes, inherited property generally receives a basis equal to its fair market value on the date of death, although exceptions and alternative valuation rules can apply. For example, if inherited stock is valued at $80,000 for basis purposes and is later sold for $95,000, the beneficiary would generally have a $15,000 capital gain before considering any other adjustments.
Before distributing or selling inherited assets, beneficiaries can review the decedent’s state of residence, the location of real property, their relationship to the decedent and the value assigned to each asset. Those details can help determine whether an inheritance tax return or payment is required and can also provide records needed to calculate taxes if inherited property is sold later.
Bottom Line
When you’ve lost someone you love, the last thing you want to think about is paying taxes on the property you’ve inherited. That’s why if your relatives live in a state with an inheritance tax, it might be a good idea to talk to them about trusts and estate planning as soon as possible. There may also be income taxes that you have to pay if you’ve inherited an account like an IRA or a 401(k).
Tips for Estate Planning
- Estate planning can be complicated, so it pays to be prepared. A financial advisor can be a solid resource to lean on. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Estate planning can be complex, and that’s especially true if you’re someone with significant wealth. To make sure you have everything you need, read up on the essential estate planning tools for wealthy investors.
- If you want your beneficiaries to avoid a potentially long and costly probate process, consider creating a revocable living trust. This estate planning tool could give you the flexibility that you cannot get from other trusts or wills.
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