Inheritance Tax on a House: Rates, Relationships, and Exemptions

Inheritance tax on a house applies in only five states: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. What you owe depends far more on your relationship to the person who died than on the value of the house. Spouses pay nothing in all five states, direct descendants pay little or nothing in most, and rates climb to 15 or 16 percent only for distant relatives and unrelated heirs. Separately, the federal estate tax does not apply unless the deceased’s total estate tops $15 million in 2026, so most families never face a federal bill on an inherited home.¹

Which State’s Rules Apply to Your Inherited House

Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania are the only states that impose an inheritance tax. Iowa eliminated its inheritance tax as of January 1, 2025. Every other state lets you inherit a house without a state-level inheritance tax bill.

Two connections can pull you into one of the five taxing states: the deceased person’s state of residence, or the location of the house itself. If either sits in a taxing state, expect to deal with that state’s revenue department regardless of where you live.

Inheritance tax is not the same as estate tax. An estate tax is calculated on the total value of everything the deceased owned and is paid out of the estate before heirs receive anything. An inheritance tax is owed by you, the person receiving the property, based on what you individually inherited. Maryland is the only state that charges both, and its inheritance tax exempts most close family members.²

How Your Relationship to the Deceased Sets the Rate

Each of the five states sorts beneficiaries into classes by relationship. The closer the tie, the lower the rate, and in most cases the people who typically inherit a family home pay nothing.

Spouses and Close Family

Surviving spouses pay no inheritance tax in any of the five states.

Kentucky extends full exemption to parents, children, grandchildren, and siblings, which effectively removes the tax for most family transfers.³ Maryland exempts parents, children, grandchildren, stepchildren, stepparents, and siblings from its 10 percent flat rate.² Pennsylvania charges direct descendants 4.5 percent and siblings 12 percent; spouses pay zero, and parents inheriting from a child under 21 also pay zero.⁴ Nebraska taxes immediate family at 1 percent on value above a $100,000 exemption.⁵

Distant Relatives and Unrelated Heirs

The tax hits hardest at the far edge of the family tree.

In Kentucky, nieces, nephews, and in-laws face graduated rates from 4 to 16 percent, while unrelated heirs pay 6 to 16 percent on a graduated scale.³ New Jersey charges unrelated heirs 15 percent on the first $700,000 of inherited property and 16 percent on anything above that.⁶ Nebraska taxes unrelated beneficiaries at 15 percent after a $25,000 exemption, and remote relatives at 11 percent after a $40,000 exemption.⁵ Pennsylvania applies a flat 15 percent to anyone who isn’t a spouse, descendant, or sibling.⁴ Maryland charges a flat 10 percent to all non-exempt beneficiaries.²

Dollar Exemptions Before the Tax Applies

Some states let you inherit a certain dollar amount before the tax kicks in. Nebraska is the most generous: $100,000 for immediate relatives, $40,000 for remote relatives, and $25,000 for unrelated heirs.⁵ Kentucky and Maryland have small exemptions of around $500 to $1,000 depending on the beneficiary class, and Maryland waives its tax entirely when the estate’s total value is $50,000 or less. Pennsylvania has no dollar exemption for taxable classes, so the tax applies from the first dollar for non-exempt heirs.⁴

How the House Gets Valued

Your tax is calculated on the fair market value of the house on the date the owner died. That means what a reasonable buyer would pay a willing seller, with neither side under pressure. A county property tax assessment or an online estimate will not satisfy the state revenue department. You need a formal appraisal from a qualified professional, and for estate and inheritance tax work, the IRS recommends appraisers who follow the Uniform Standards of Professional Appraisal Practice. Expect to pay roughly $350 to $1,000 for a residential estate appraisal, depending on the property.

Mortgage Debt Reduces the Taxable Value

If the house still carries a mortgage, you are generally not taxed on the full property value. Federal rules allow the unpaid mortgage balance to be deducted from the gross value, and state inheritance tax calculations follow similar logic.⁷ A house worth $400,000 with a $150,000 mortgage balance gives you a taxable inheritance of $250,000. A home equity line of credit or a contractor’s lien reduces the figure the same way.

Filing the Return and Paying What You Owe

Inheritance tax returns are generally due nine months after the date of death, the same deadline the IRS uses for federal estate tax returns.⁸ Missing the deadline triggers interest, and some states add penalties on top. Pennsylvania treats the tax as delinquent after nine months and begins charging interest from that point.⁴

Before filing, gather the most recent deed showing the legal description of the property, your certified appraisal, the deceased person’s Social Security number, and your own identifying information. Each state has its own form. Pennsylvania uses the REV-1500; New Jersey uses the IT-R.⁴ The return goes to the local Register of Wills or the state revenue department, depending on the jurisdiction, and payment usually accompanies the return by electronic transfer, certified check, or money order.

Pennsylvania’s Early Payment Discount

Pennsylvania offers a 5 percent discount if you pay the full inheritance tax within three months of the date of death.⁴ On a $250,000 taxable inheritance at the 4.5 percent direct descendant rate, that saves about $562. The actual payment has to arrive inside the three-month window, not just the return. Not all five states offer a comparable discount, so check with the relevant revenue department before assuming one is available.

Installment Plans if You Can’t Pay Up Front

If you have inherited a house but not the cash to pay the bill, most state revenue departments will work with you on a payment arrangement. Installment plans typically involve monthly payments with interest on the outstanding balance. Missing a scheduled payment can void the agreement and make the full amount due immediately. Some states allow extended terms for documented financial hardship, but you generally have to keep paying while the request is under review.

Capital Gains If You Sell the House Later

State inheritance tax is not the only tax question. If you sell the house after inheriting it, federal capital gains tax may apply to any increase in value between the date of death and the date of sale. Inherited property gets a stepped-up basis: your cost basis resets to the home’s fair market value at the time the prior owner died, not what they originally paid.⁹

The math matters. If your parent bought a house in 1990 for $80,000 and it was worth $350,000 when they died, your basis is $350,000. Sell six months later for $360,000, and your taxable gain is $10,000, not $280,000. For 2026, federal long-term capital gains rates are 0, 15, or 20 percent depending on total taxable income. Single filers below roughly $49,000 pay nothing; the 20 percent rate does not apply until taxable income exceeds about $545,000. Most heirs who sell shortly after inheriting will owe little or no capital gains tax.

One narrow exception: if someone gave you the property as a gift within one year before their death and you then inherited it back, the stepped-up basis does not apply to that property.⁹

Tax Liens Can Block a Sale

Unpaid inheritance or estate tax can create a lien on the house that prevents a clean sale or refinance. At the federal level, when a Form 706 estate tax return is required, a lien attaches automatically to every asset in the gross estate, and it doesn’t have to be recorded publicly to be valid.¹⁰ To sell free of that lien, apply for a discharge using IRS Form 4422.

State-level clearance works similarly. Once you file the inheritance tax return and pay what you owe, the state issues a closing letter or tax clearance certificate. Title companies and buyers’ attorneys typically require it before closing. If the state finds the payment short, it issues a bill for the balance plus interest running from the original due date. Getting the certificate can take weeks to months, so if you plan to sell, file the return and pay early rather than waiting for the nine-month deadline.

Federal Estate Tax Rarely Enters the Picture

The federal estate tax works on a different scale and almost never affects a typical inheritance. For 2026, the exclusion is $15 million per individual, and only estates above that owe anything to the IRS.¹ The One, Big, Beautiful Bill Act signed in July 2025 made that amount permanent, with inflation adjustments beginning in 2027. Married couples can effectively shelter up to $30 million combined through portability.

When federal estate tax does apply, the estate pays it before assets go to heirs, not the individual beneficiaries. The top rate is 40 percent, but fewer than one percent of estates owe anything at all. Your inherited house can still trigger state inheritance tax even when the estate is well below the federal threshold, because the state tax looks at what you received rather than the estate’s total size. In Maryland, an estate worth $5 million would owe no federal estate tax but could still generate an inheritance tax bill for a non-exempt beneficiary who inherits the house.²

1
Internal Revenue Service. What’s New – Estate and Gift Tax
2
New York Codes, Rules and Regulations. Maryland Tax-General Code – Inheritance Tax
3
Kentucky Department of Revenue. A Guide to Kentucky Inheritance and Estate Taxes
4
Commonwealth of Pennsylvania. Inheritance Tax
5
Nebraska Legislature. Nebraska Revised Statutes 77-2004
6
State of New Jersey Department of the Treasury. Inheritance Tax Rates
7
eCFR. 26 CFR 20.2053-7 – Deduction for Unpaid Mortgages
8
Office of the Law Revision Counsel. 26 USC 6075 – Time for Filing Estate and Gift Tax Returns
9
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
10
Internal Revenue Service. Sell Real Property of a Deceased Persons Estate