In most cases, you will not pay any inheritance tax on a house you inherit. Only five states charge an inheritance tax at all, and the federal government does not have one. A separate federal estate tax exists, but it is paid by the deceased person’s estate before anything reaches you, and in 2026 it only applies to estates worth more than $15,000,000.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Whether you owe anything on an inherited house comes down to where the property sits, how you were related to the person who died, and what the home was worth on the date of death.
It helps to keep two taxes straight. An estate tax is paid out of the estate itself before assets are distributed, so heirs receive what is left. An inheritance tax is paid by the person receiving the property. There is no federal inheritance tax; it exists only at the state level.2Office of the Law Revision Counsel. 26 USC Ch. 11 – Estate Tax
The Five States That Charge Inheritance Tax
Only Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania currently impose an inheritance tax. If the house you are inheriting is in any of the other 45 states, no state inheritance tax applies to you. Maryland is the one state that imposes both an estate tax and an inheritance tax.
Iowa used to charge an inheritance tax but fully repealed it effective January 1, 2025. Any property inherited from someone who died on or after that date is no longer subject to Iowa’s inheritance tax.
A separate state estate tax may still apply in some jurisdictions, but that is paid by the estate, not by you as the heir.
How Your Relationship to the Deceased Changes the Tax
In every state that charges an inheritance tax, the rate depends on how you were related to the person who died. Closer relatives owe less or nothing; more distant relatives and unrelated heirs owe the most.
- Surviving spouses are exempt in all five states, no matter what the house is worth.
- Children, grandchildren, and parents are exempt in most of these states, or taxed at very low rates. Where direct descendants owe anything, rates run roughly 1% to 4.5%.
- Siblings typically face moderate rates around 11% to 12%, though some states exempt them entirely.
- Distant relatives and unrelated heirs face the highest rates, ranging from 15% to 16%. Kentucky and New Jersey top out at 16%.
- Charitable organizations are fully exempt in every state that imposes the tax.
Each state also sets its own exemption threshold, meaning the amount you can inherit before any tax begins. Exemptions range from nothing at all to $100,000 for close relatives, depending on the state and the beneficiary class. The same inherited house can produce very different tax bills depending on which state it sits in and who is inheriting it.
How the House Gets Valued
The taxable value of an inherited home is its fair market value on the date of the owner’s death. That is not the price the owner originally paid, and it is not the local property tax assessment. Fair market value is what a willing buyer would pay a willing seller when both know the property and neither is under pressure to close.3eCFR. 26 CFR 20.2031-1 – Definition of Gross Estate; Valuation of Property
In practice, that means a professional appraisal by a certified appraiser who looks at recent comparable sales. A residential appraisal for probate or estate purposes generally runs $200 to $600 for a single-family home; complex or high-value properties cost more. Keep the appraisal report. You will need it to support the value on any tax return, and it also fixes your cost basis if you decide to sell later.
If There’s Still a Mortgage
An outstanding mortgage generally reduces the taxable value of the home. When the estate is responsible for the debt, the full value of the property is included in the estate and the unpaid mortgage balance comes off as a deduction. If the estate is not liable for the loan, only the equity — the home’s value minus the remaining balance — is counted.4eCFR. 26 CFR 20.2053-7 – Deduction for Unpaid Mortgages
The Six-Month Alternate Valuation Date
The executor can sometimes choose to value everything in the estate six months after the date of death instead of on the date of death. This election is only available if it lowers both the total estate value and the estate tax owed, and it has to be made on the federal estate tax return. Once made, it is irrevocable.5eCFR. 26 CFR 20.2032-1 – Alternate Valuation If the home lost value after the death because of the market or property damage, this can reduce the bill.
What You’ll Owe If You Sell the House
Even if no inheritance tax applies, selling an inherited home has its own tax consequences, and this is where most people get tripped up. Federal law resets the cost basis of inherited property to its fair market value at the date of the owner’s death.6Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent This is called a step-up in basis, and it usually works in your favor.
Say your parent bought a home for $150,000 decades ago and it was worth $400,000 when they died. Your basis is $400,000, not $150,000. Sell it soon after for $410,000 and you owe capital gains tax on $10,000, not on the $260,000 of appreciation that built up during your parent’s lifetime.7Internal Revenue Service. Gifts and Inheritances
If you keep the house, capital gains tax only comes into play when you eventually sell, and only on gains above the stepped-up basis. If you move in and make it your primary residence, you may also qualify for the standard home-sale exclusion of up to $250,000 for a single filer or $500,000 for a married couple filing jointly, provided you meet the ownership and use requirements.
The Mortgage Doesn’t Come Due
Inheriting a house with a mortgage does not give the lender the right to demand the full balance. Federal law prohibits lenders from enforcing a due-on-sale clause when a home transfers to a relative because of the borrower’s death. The protection covers transfers to a spouse, children, or any relative resulting from the borrower’s death, as long as the property has fewer than five dwelling units.8Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
You step into the existing loan at its current terms. You are responsible for keeping up the payments, but the lender cannot force a refinance or a payoff just because the title changed hands. If the payments are more than you can carry, selling the house or refinancing into your own name are the usual options.
Deadlines and What to Do If the House Is the Only Asset
States that impose an inheritance tax generally require the return and payment within six to nine months after the date of death. Some offer a discount for early payment; paying within the first three months, for example, can reduce the amount owed in certain states. Missing the deadline triggers interest, at rates that vary by state.
Once the state processes the return and confirms payment, it issues a tax clearance letter. That letter is often needed to clear title on the property, so file it with your real estate records. Without it you may run into problems selling or refinancing later.
A common bind: the house is the estate’s main asset, and there is no cash to pay the tax. Under federal estate tax rules, the executor can ask for a hardship extension of up to one year at a time and up to ten years in total. The request has to show specific hardship rather than a general shortage of funds. A home that could only be sold at a steep loss in a depressed market is the kind of situation the IRS treats as valid grounds.9eCFR. 26 CFR 20.6161-1 – Extension of Time for Paying Tax Shown on the Return
State inheritance tax rules have their own extension and installment provisions, which vary. If you inherit a house and cannot cover the tax out of pocket, call the state revenue department before the filing deadline to ask what options are available.