There is no IRS inheritance tax. The federal government does not tax people who receive money or property from someone who has died. What the federal government imposes is an estate tax, and it is paid by the estate itself before anything reaches the heirs — and only when the estate is worth more than $15 million per person in 2026. Most heirs owe the IRS nothing simply for inheriting. The real federal tax exposure for an ordinary heir shows up later, and almost always through one asset: an inherited retirement account.
Estate Tax and Inheritance Tax Are Not the Same Thing
The federal estate tax is a tax on the deceased person’s right to transfer property. The executor calculates it, files the return, and pays it out of estate funds. Heirs receive what is left. They do not write a check to the IRS for receiving it.
An inheritance tax works the other way: the person receiving the property owes the tax, and the rate usually depends on their relationship to the deceased. The IRS has nothing to do with inheritance taxes. Only five states impose one: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.1Tax Foundation. Estate and Inheritance Taxes by State, 2025
So when people search for the “IRS inheritance tax,” they are usually asking one of two different questions: will the estate owe federal tax before I get my share, or will I owe federal tax on what I receive? Both answers are below.
When the Federal Estate Tax Applies
For deaths in 2026, the basic exclusion amount is $15 million per individual. Only the portion of an estate exceeding that threshold is taxed, and the top rate on the taxable portion is 40%.2Internal Revenue Service. What’s New Estate and Gift Tax3Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
The $15 million figure was set by the One Big Beautiful Bill Act signed in July 2025, which made the higher exclusion permanent and indexed it for inflation. The scheduled 2026 drop under the 2017 tax law’s sunset provision no longer exists.
The estate is calculated on the net value of everything the person owned at death — real estate, investments, bank accounts, business interests, life insurance proceeds payable to the estate — minus debts, funeral expenses, administrative costs, charitable bequests, and anything left to a surviving spouse. Two deductions do most of the work. The unlimited marital deduction lets a surviving spouse inherit any amount without triggering estate tax.4Office of the Law Revision Counsel. 26 USC 2056 – Bequests to Surviving Spouse Charitable bequests come off the gross estate dollar for dollar.5Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses
Filing Requirements and Deadlines
The executor files IRS Form 706 only if the gross estate plus adjusted taxable gifts exceeds the filing threshold, or if the executor wants to elect portability for the surviving spouse.6Internal Revenue Service. About Form 706 United States Estate and Generation-Skipping Transfer Tax Return An estate worth $3 million with no portability election does not need to file. A return is not required for every death.
When filing is required, the deadline is nine months after the date of death. A six-month extension is available by filing Form 4768 before that deadline. The extension covers the filing deadline, but estimated tax is still due at nine months.7Internal Revenue Service. Filing Estate and Gift Tax Returns
Income Tax on What You Inherit
Federal law excludes inheritances from gross income. If you receive $50,000 in cash or a house from a deceased relative, you do not report it as income.8Office of the Law Revision Counsel. 26 USC 102 – Gifts and Inheritances Income tax only enters the picture when you later sell inherited property at a gain, and even then the rules work in your favor.
The Step-Up in Basis
The cost basis of inherited property resets to its fair market value on the date the owner died.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If your parent bought stock for $5,000 in 1990 and it was worth $200,000 when they died, your basis is $200,000. Sell the next week at $200,000 and your capital gain is zero. All of the appreciation that happened during your parent’s lifetime is erased for income tax purposes. You do not file anything extra to claim it; the basis adjustment is automatic.
The executor can instead elect an alternate valuation date six months after death, but only when doing so reduces both the total estate value and the estate tax owed.10Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation If the executor uses that date, heirs receive the lower value as their stepped-up basis.
Inherited Assets That Are Taxable
Two categories break the general rule that inheritances are not income. Both are called “income in respect of a decedent,” or IRD.
Income the Deceased Earned but Never Received
Certain income items do not get a step-up because they were never taxed during anyone’s lifetime. An unpaid bonus, accrued salary, accounts receivable from a business, or interest on savings bonds the deceased never reported all pass through to the heir with the same character they would have had in the deceased’s hands.11Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents An unpaid commission is still ordinary income when you receive it. An installment sale payment is still partly capital gain.
Inherited Retirement Accounts
This is where the biggest tax bills hide. Traditional IRAs, 401(k)s, and similar tax-deferred accounts are treated as IRD. Withdrawals are taxed as ordinary income to whoever takes them, and under current rules most non-spouse beneficiaries must empty the account within ten years of the original owner’s death.12Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
The ten-year rule comes from the SECURE Act of 2019, which eliminated the old “stretch IRA” strategy of spreading distributions over the heir’s own lifetime. If the account owner had already started taking required minimum distributions before dying, IRS regulations also require the beneficiary to take annual withdrawals during that ten-year window, not just a lump sum at the end.13Internal Revenue Service. Notice 2024-35, Certain Required Minimum Distributions If the owner died before their required beginning date, timing is more flexible, but the account still has to be empty by year ten.
A few beneficiaries can still stretch distributions over their lifetime: surviving spouses, minor children of the account owner (until they reach the age of majority), and individuals who are disabled or chronically ill.14Internal Revenue Service. Retirement Topics – Beneficiary Once a minor child reaches adulthood, the ten-year clock starts for them as well.
Someone inheriting a $500,000 traditional IRA during peak earning years can face an additional $100,000 or more in federal income tax over the decade, depending on their bracket. Roth IRAs are the exception. Inherited Roth accounts still follow the ten-year distribution rule, but the withdrawals are generally tax-free because the original contributions were made with after-tax dollars.
State Inheritance and Estate Taxes
The IRS is not the whole picture. Twelve states and the District of Columbia impose their own estate taxes, and five states impose inheritance taxes.1Tax Foundation. Estate and Inheritance Taxes by State, 2025 Maryland does both. State estate tax exemption thresholds are typically far lower than $15 million, and some start as low as $1 million, so an estate that owes nothing federally can still face a real state bill.
The five inheritance tax states — Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — set rates based on the heir’s relationship to the deceased. Surviving spouses are exempt in all five. Children and other close family members either pay nothing or face low single-digit rates. Distant relatives and unrelated beneficiaries pay the highest rates, which can reach 15% to 16% depending on the state. If you live in one of these states or inherit property located there, check the specific exemptions and rates for your relationship category.
Foreign Inheritances Have a Reporting Trap
Receiving an inheritance from a non-U.S. person creates a separate reporting obligation. If the total value of foreign gifts or bequests exceeds $10,000 in a year (adjusted annually for inflation), you must report them to the IRS on Form 3520.15Office of the Law Revision Counsel. 26 USC 6039F – Information on Foreign Gifts or Bequests The inheritance itself is not taxed. This is purely an information return. But failing to file triggers a penalty of 5% of the value for each month the return is late, up to 25%.
On a $200,000 foreign inheritance, that is $10,000 per month in penalties, capping at $50,000. The IRS can waive the penalty for reasonable cause, but the default position is aggressive enforcement. Anyone expecting assets from a relative abroad should build the filing into their timeline.