If you inherit a house, land, or physical belongings located in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you may owe out of state inheritance tax to that state even if you and the deceased person lived somewhere else entirely. Those five states are the only ones that still impose this tax, and each one reaches physical property within its borders regardless of where the owner called home. What you pay depends on three things: which state the property sits in, how closely you were related to the person who died, and the value of the in-state assets.
When the Tax Actually Applies to You
The deciding factor is called situs, which simply means where an asset is physically located. Real property and tangible personal property are taxed where they sit. A vacation home, a parcel of undeveloped land, a car titled in the state, or valuable items kept at a property there all qualify.
Intangible assets work the opposite way. Stocks, bonds, bank accounts, retirement funds, and similar holdings follow the deceased person’s home state, not the state where the company or bank is located. A non-resident who owned shares in a company incorporated in New Jersey would not owe New Jersey inheritance tax on those shares.1Legal Information Institute. New Jersey Administrative Code 18:26-6.5 – Intangible Property of a Nonresident The same person’s beach house in New Jersey, on the other hand, triggers a filing.2New Jersey Division of Taxation. Transfer Inheritance Tax Non-Resident Return
If the deceased’s only link to one of these five states was intangible, you almost certainly owe nothing there. If there’s real estate or physical property in play, keep reading.
What Each State Charges
All five states set rates based on your relationship to the person who died. Spouses and close family generally pay little or nothing. Distant relatives and unrelated beneficiaries face the steepest rates.
Pennsylvania
Pennsylvania uses flat rates:3Pennsylvania Department of Revenue. Inheritance Tax
- 0% for a surviving spouse, or a parent inheriting from a child age 21 or younger
- 4.5% for direct descendants and lineal heirs
- 12% for siblings
- 15% for all other heirs
Property owned jointly between spouses is fully exempt. Certain agricultural land transferred to eligible recipients is also exempt for deaths after June 30, 2012. For non-resident decedents, Pennsylvania taxes only the real property and tangible personal property located inside the state.
New Jersey
Class A beneficiaries (spouses, children, grandchildren, and parents) owe nothing. Everyone else is graduated:4New Jersey Division of Taxation. Inheritance Tax Rates
- Class C (siblings, children-in-law): no tax on the first $25,000, then 11% to 16%, topping out at 16% over $1,700,000
- Class D (all other heirs): 15% on the first $700,000, then 16% above that, with no exemption
A friend inheriting a shore house worth $500,000 would face 15% on the entire value.
Kentucky
Class A beneficiaries (spouses, parents, children, grandchildren, and siblings) are fully exempt. Other classes face graduated rates:5Kentucky Department of Revenue. Inheritance and Estate Tax
- Class B (nieces, nephews, children-in-law, aunts, uncles): $1,000 exemption, then 4% to 16%
- Class C (all other heirs): $500 exemption, then 6% to 16%
Maryland
Maryland imposes a flat 10% rate on taxable transfers. The exempt list is broad: spouses, children, grandchildren, parents, grandparents, siblings, stepchildren, spouses of the deceased’s children, and registered domestic partners all pay nothing. Charities and government entities are also exempt. Everyone else pays 10%, including nieces, nephews, cousins, friends, and unmarried partners who aren’t registered domestic partners.6Maryland Register of Wills. Inheritance Tax Non-residents are taxed on tangible property physically located in Maryland; bank accounts and investments are not reached.
Nebraska
Nebraska’s rates by relationship:
- Immediate family (children, parents, siblings): 1% on amounts over $100,000
- Distant relatives (aunts, uncles, nieces, nephews): 11% on amounts over $40,000
- Unrelated heirs: 15% on amounts over $25,000
The tax is administered at the county level, which can be awkward for out-of-state executors who need to file in the county court where the property sits. Further rate reductions have been under consideration, so the figures may change.
How the Bill Is Calculated for a Non-Resident
A non-resident’s in-state property usually isn’t taxed at face value. Most of these states prorate. New Jersey’s method is representative: it first calculates the tax as if the deceased had been a New Jersey resident and the entire estate were in-state, then multiplies that figure by the ratio of New Jersey property to the total worldwide estate.7Legal Information Institute. New Jersey Administrative Code 18:26-2.15 – Ratio Tax on Transfer of Nonresident
In practice: a non-resident dies with a $2,000,000 total estate that includes a $200,000 New Jersey rental property passing to a nephew. New Jersey computes the tax as though the full $2,000,000 were in-state, then charges 10% of that figure, because the New Jersey property is 10% of the whole. Proration usually produces a lower bill than taxing the property’s full value.
There’s an exception. If the deceased specifically left the New Jersey property to a named person in the will (a specific devise), the property is taxed directly to that beneficiary at full resident rates instead of going through the proration formula.7Legal Information Institute. New Jersey Administrative Code 18:26-2.15 – Ratio Tax on Transfer of Nonresident Depending on the numbers, this can produce a higher tax than proration would have. Kentucky similarly prorates exemptions for non-residents based on the proportion of Kentucky property to the total estate.8Kentucky Department of Revenue. A Guide to Kentucky Inheritance and Estate Taxes
When You Have to File and Pay
Each state sets its own deadline from the date of death, and the range is wider than most people expect:
- New Jersey: 8 months9New Jersey Division of Taxation. IT-R Instructions
- Pennsylvania: 9 months3Pennsylvania Department of Revenue. Inheritance Tax
- Nebraska: 12 months10Nebraska Legislature. Nebraska Revised Statute 77-2010
- Kentucky: 18 months8Kentucky Department of Revenue. A Guide to Kentucky Inheritance and Estate Taxes
- Maryland: the Register of Wills calculates the tax and sends an invoice; payment is due within 30 days6Maryland Register of Wills. Inheritance Tax
Filing extensions are sometimes available, but they generally do not extend the payment deadline. Unpaid tax accrues interest from the original due date. Nebraska is particularly aggressive: failing to file within twelve months triggers a 5% penalty per month on the unpaid balance, up to 25%.10Nebraska Legislature. Nebraska Revised Statute 77-2010 Maryland imposes a 10% penalty plus interest if payment isn’t made within 30 days of the invoice.6Maryland Register of Wills. Inheritance Tax Most filings are still submitted by mail, using each state’s dedicated non-resident return.
The Lien Problem If You Want to Sell
Until the inheritance tax is paid, the state typically holds a lien on the inherited property. That lien blocks a sale, a refinance, or a clean transfer of title. Ignoring the filing and sorting it out later at closing is not a workable plan.
Clearing the lien usually means filing the non-resident return, paying what the state calculates, and obtaining a tax waiver or lien release. Only then can the property be conveyed with clean title. Processing times vary and delays are common, so executors who wait until a closing is imminent often end up scrambling. If the estate also has a federal estate tax filing requirement, a separate federal lien attaches to the gross estate and must be cleared alongside the state lien.
Ancillary Probate Runs Alongside the Tax
Owning real estate in another state usually requires a second probate case in that state, called ancillary probate, running parallel to the primary probate at home. The executor files a certified copy of the will and proof of probate from the home state, then applies for authority to act locally. Ancillary probate adds legal costs, administrative time, and a second set of court requirements on top of the inheritance tax filing. Combined, these can run into the thousands before any tax itself is paid.
Planning Ahead to Avoid the Tax
The most common strategy is converting out-of-state real property into intangible property before death. Transferring a vacation home or rental into a limited liability company changes what you own: instead of real estate in another state, you own an LLC membership interest, which is intangible personal property that follows your home state. Because a non-resident’s intangible property is generally exempt from inheritance tax, the LLC structure removes the property from the taxing state’s reach. The same principle explains why an out-of-state bank account escapes the tax but an out-of-state house doesn’t.
Revocable trusts are often suggested for out-of-state property, and they do avoid ancillary probate. A revocable trust by itself, though, may not eliminate inheritance tax, because the trust assets are still included in the deceased’s estate for tax purposes. Some plans combine the two: an LLC holds the property, and a trust holds the LLC interest.
These structures carry setup costs, formation fees, annual reporting, and possible effects on property tax exemptions or mortgage terms. For a single modest property passing to close family who would owe little or nothing anyway, the planning costs can exceed the tax savings. The math is worth running when the property is valuable or when beneficiaries fall into the higher-rate classes.