Is There a Federal Inheritance Tax or Estate Tax?

There is no federal inheritance tax. When you receive money, real estate, investments, or personal belongings from someone who has died, the federal government does not treat that inheritance as income, and you do not report its value on your tax return, no matter how much you received or how you were related to the person who passed away.¹ A few related federal rules can still reach heirs in specific situations, and those are worth knowing before you assume the entire transfer is tax-free.

Why an Inheritance Isn’t Federal Income

Federal tax law draws a clear line. Property received through a bequest or inheritance is excluded from gross income.¹ Cash, a house, a car, a brokerage account, jewelry, a family business interest: none of it is treated as earnings, and none of it triggers a federal income tax when it changes hands.

One distinction sits inside the same statute. The transfer itself is tax-free, but income the property generates after you own it is taxable to you.¹ Inherit a rental property and the rent you collect is ordinary income. Inherit a brokerage account and the dividends and interest earned after the date of death belong on your return. The exclusion covers what you received, not what it earns going forward.

The Federal Estate Tax Is Paid by the Estate, Not by You

People sometimes confuse the federal estate tax with an inheritance tax. They are different. The estate tax is imposed on the total value of the deceased person’s estate before assets are distributed, and it is the executor or personal representative who calculates and pays it out of estate funds.² Heirs do not receive a bill.

Most estates owe nothing. For people who die in 2026, the basic exclusion amount is $15,000,000.³ That figure reflects a permanent increase enacted by the One, Big, Beautiful Bill signed into law on July 4, 2025, which replaced the temporary doubling under the Tax Cuts and Jobs Act that had been scheduled to expire at the end of 2025. The exclusion adjusts for inflation in years after 2026.⁴

Only the portion of an estate above $15,000,000 is taxed, at graduated rates up to a maximum of 40 percent.² Because the threshold is high, the vast majority of estates owe no federal estate tax at all, and the vast majority of heirs never see the transfer reduced by one.

When You Do Owe Federal Tax on Something You Inherited

The general rule has real exceptions. Some assets carry income the original owner never paid tax on, and that unpaid tax follows the asset to you.

Inherited Traditional IRAs and 401(k)s

Contributions to a traditional IRA or 401(k) were tax-deferred. The original owner never paid income tax on the money going in or on the growth inside the account. When you take distributions as the beneficiary, those withdrawals are included in your taxable income for the year you receive them.⁵

If the original account owner died in 2020 or later, most non-spouse beneficiaries must withdraw the entire balance within 10 years of the owner’s death.⁶ The 10-year clock does not apply to a surviving spouse, a minor child of the account owner, a beneficiary who is disabled or chronically ill, or a beneficiary no more than 10 years younger than the deceased. Those eligible beneficiaries can generally stretch distributions over their own life expectancy.

Inherited Roth IRAs

Inherited Roth IRAs follow the same 10-year distribution timeline for most non-spouse beneficiaries, but the tax treatment is different because Roth contributions were made with after-tax dollars. Withdrawals of contributions and most earnings from an inherited Roth are tax-free. Earnings may be taxable only if the Roth account had been open for fewer than five years at the time of the withdrawal.⁷

Life Insurance Proceeds

Life insurance death benefits paid to you as beneficiary are generally not included in your gross income, and you do not report the lump sum on your return.⁸ Two situations change that. If the insurer holds the money before paying you and the balance earns interest, that interest is taxable and gets reported as interest income. If you had purchased the policy from someone else for cash or other consideration, the tax-free exclusion is limited to what you paid plus any additional premiums.

Stepped-Up Basis When You Sell Inherited Property

If you eventually sell something you inherited, capital gains tax depends on your cost basis, and the basis rule for inherited property is favorable. Your basis in an inherited asset is generally the fair market value on the date of the decedent’s death, not what the original owner paid for it.⁹ This reset is commonly called a stepped-up basis.

Consider a parent who bought stock for $50,000 that was worth $200,000 on the date of death. Your basis is $200,000. If you sell shortly after for $200,000, you owe no capital gains tax. Without the step-up you would have owed tax on $150,000 of gains. The rule also cuts the other way: if the property had lost value, your basis is the lower fair market value at death.

Reporting a Foreign Inheritance

An inheritance from a foreign individual or foreign estate is still not federal income, but a large one comes with a reporting duty. If the total you receive from a nonresident alien or foreign estate exceeds $100,000 in a single tax year, you must file Form 3520.¹⁰ The form is informational; it does not create a tax.

You complete the identifying information on page one and Part IV, which covers gifts and bequests from foreign persons. The form asks for:

the date of each transfer
a description of the property, whether tangible (such as cash or real estate) or intangible (such as stock or bonds)
the fair market value of each asset when you received it
donor identification, with each individual gift exceeding $5,000 separately listed

Form 3520 is due on the same date as your income tax return, which is April 15 for calendar-year filers. An income tax extension extends the Form 3520 deadline as well, but no later than October 15.¹¹ Mail it separately from your regular tax return to: Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.¹⁰

Late filing is expensive. The IRS charges 5 percent of the unreported foreign inheritance for each month the report is late, up to 25 percent of the total value. A reasonable-cause exception applies if you can show the failure was not due to willful neglect.¹⁰ Keep a copy of what you filed and proof of mailing.

Inherited Foreign Financial Accounts

If your inheritance includes a financial account held outside the United States, such as a foreign bank account, investment account, or mutual fund, a separate filing may apply. Any U.S. person with a financial interest in foreign accounts whose combined value exceeds $10,000 at any point during the year must file FinCEN Form 114, commonly called an FBAR.¹² The FBAR is due April 15, with an automatic extension to October 15 that requires no separate request, and it is filed electronically through the BSA E-Filing System rather than with the IRS.

State Inheritance and Estate Taxes Are a Different Story

The federal answer does not settle the state question. A handful of states do impose an inheritance tax directly on beneficiaries, with rates that depend on the relationship between the deceased and the heir. Spouses are typically exempt entirely, children often pay a lower rate or nothing, and unrelated heirs pay the most, with top rates reaching 16 percent.

Separately, roughly a dozen states and the District of Columbia impose their own estate taxes with exemption thresholds well below the federal level, in some cases as low as $2,000,000. An estate that owes nothing to the federal government can still face a state estate tax bill. If you inherit from someone who lived in or owned property in one of these states, check with that state’s tax authority for the applicable rules and deadlines.

1
GovInfo. 26 U.S.C. 102 – Gifts and Inheritances
2
Office of the Law Revision Counsel. 26 U.S.C. 2001 – Imposition and Rate of Tax
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax
5
Office of the Law Revision Counsel. 26 U.S. Code 691 – Recipients of Income in Respect of Decedents
6
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
7
Internal Revenue Service. Retirement Topics – Beneficiary
8
Internal Revenue Service. Life Insurance and Disability Insurance Proceeds
9
Office of the Law Revision Counsel. 26 U.S.C. 1014 – Basis of Property Acquired From a Decedent
10
Internal Revenue Service. Gifts From Foreign Person – Large Gifts or Bequests From Foreign Persons
11
Internal Revenue Service. Instructions for Form 3520
12
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)