No, the United States does not have an inheritance tax at the federal level. What the federal government imposes is an estate tax, which is paid by the deceased person’s estate before anything reaches the heirs, and it only applies to estates worth more than $15 million in 2026. Five states impose their own inheritance tax on the people who receive property, and whether you owe depends on where the deceased lived and how closely related you were.
For most heirs, the practical answer is simple: you receive your inheritance and owe nothing. The exceptions are narrow but worth knowing about.
Why Heirs Rarely Owe Federal Tax
The federal estate tax and an inheritance tax are two different things. An inheritance tax is charged to the person receiving property. An estate tax is charged to the estate itself, calculated on the total value of what the deceased owned, and paid before assets are distributed. Heirs never write a check to the IRS for federal estate tax.
Even the estate tax reaches almost no one. It applies only to estates that exceed the basic exclusion amount, which is $15 million per individual for 2026. The One, Big, Beautiful Bill Act, signed into law on July 4, 2025, set that amount and eliminated the sunset provision attached to the previous exemption.1Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Married couples who plan properly can shield up to $30 million combined. Above the exclusion, rates start at 18 percent and top out at 40 percent.2Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Fewer than 1 in 1,000 estates owe anything.
Property passing to a surviving spouse is also fully deductible from the federal estate, with no cap on the amount.3Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse A spouse inheriting a $50 million estate owes no federal estate tax.
The Five States That Tax Inheritances
Five states currently impose an inheritance tax on the people who receive property: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa eliminated its inheritance tax effective January 1, 2025.4Tax Foundation. Estate and Inheritance Taxes by State, 2025
The tax is triggered by where the deceased lived, or where their tangible property was located, not by where you live. If your uncle was a Kentucky resident and you live in California, Kentucky can still tax what he left you. Maryland is the only state that enforces both an inheritance tax on heirs and a separate estate tax on the estate itself.4Tax Foundation. Estate and Inheritance Taxes by State, 2025
How the Rate Depends on Your Relationship
Every state with an inheritance tax structures it around how closely related the heir was to the deceased. The closer the tie, the lower the rate and the larger the exemption. All five states fully exempt surviving spouses.
- Children, grandchildren, and parents are generally exempt or taxed at very low rates. Several states exempt direct descendants entirely; others apply rates of about 1 to 4.5 percent.
- Siblings, in-laws, and extended family face shrinking exemptions and higher rates, from roughly 4 percent up to 16 percent, with exemptions running from $1,000 to $25,000.
- Unrelated heirs, including friends and unmarried partners, face the steepest rates. In some states the exemption drops as low as $500 before rates of 6 to 16 percent apply.4Tax Foundation. Estate and Inheritance Taxes by State, 2025
The practical effect is sharp. A daughter inheriting $500,000 might owe nothing. A close friend inheriting the same amount from the same estate could face a five-figure bill. If you are an unrelated beneficiary in one of these five states, the state inheritance tax is the cost most likely to catch you off guard.
State Estate Taxes Can Still Reduce What You Receive
Twelve states and the District of Columbia impose their own estate tax on the deceased person’s estate. Exemptions range from $1 million to roughly $14 million, and top rates run from 12 to 20 percent.4Tax Foundation. Estate and Inheritance Taxes by State, 2025 An estate worth $3 million might owe nothing federally but still face a state estate tax where the exemption sits at $1 million or $2 million.
You do not pay this tax personally. The estate pays before distribution. But it shrinks the pool that reaches you. If you expect to inherit from someone in one of these states, the estate’s size relative to the state exemption matters more than the federal threshold.
The Step-Up in Basis: The Tax Break Most Heirs Actually Use
The most valuable tax feature of inheritance has nothing to do with the estate or inheritance tax. When you inherit an asset, your tax basis resets to its fair market value on the date of the owner’s death.5Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This step-up wipes out any capital gains tax on appreciation that occurred during the deceased person’s lifetime.
Say your parent bought a house in 1985 for $80,000, and it was worth $450,000 when they died. Had they sold it during their lifetime, they would have owed capital gains tax on up to $370,000 of profit. When you inherit it, your basis becomes $450,000. Sell it shortly after for $450,000 and your taxable gain is zero. Hold it and sell later for $500,000, and you only owe tax on the $50,000 of appreciation that happened after you inherited.
For 2026, single filers with taxable income up to $49,450 pay zero percent on long-term capital gains. Married couples filing jointly can earn up to $98,900 before the 15 percent rate applies. Many heirs who sell inherited property soon after receiving it end up owing nothing.
Retirement Accounts and Life Insurance Follow Different Rules
Not everything you inherit gets the same favorable treatment. Inherited retirement accounts are the biggest exception.
If you inherit a traditional IRA or 401(k) from someone who was not your spouse and who died after 2019, you generally must withdraw all the money within ten years of the account owner’s death.6Internal Revenue Service. Retirement Topics – Beneficiary Those withdrawals count as ordinary income on your tax return. Inheriting a $500,000 IRA does not give you $500,000 free and clear. Depending on your bracket and how you spread the withdrawals, the federal income tax could easily run $100,000 or more over the ten-year window. Surviving spouses have more options, including rolling the inherited account into their own IRA.
Life insurance runs the other way. A death benefit paid to you as a named beneficiary is generally not included in your gross income and does not need to be reported.7Internal Revenue Service. Life Insurance and Disability Insurance Proceeds If the insurer holds the proceeds and pays you interest, that interest portion is taxable, but the death benefit itself is not.
Deadlines That Matter to Heirs and Executors
The federal estate tax return (Form 706) is due nine months after the date of death. Filing Form 4768 before that deadline grants an automatic six-month extension to file, though not to pay.8eCFR. 26 CFR 20.6081-1 – Extension of Time for Filing the Return
State inheritance tax deadlines generally track the federal timeline, with returns due and tax paid within nine months of death. Some states offer an early-payment discount of around five percent for paying within three months. Missing the deadline triggers interest charges that begin accruing right after the nine-month window closes.
If you are the beneficiary and someone else is handling the estate, ask the executor whether a state inheritance tax return will be filed on your behalf and whether the tax will be paid from the estate or deducted from your share. That single question resolves most of the confusion heirs run into.