What Amount of Inheritance Is Tax Free: $15M Federal Threshold

For deaths in 2026, up to $15 million per person can be inherited free of federal estate tax, and most inheritances in the United States are tax-free regardless of size.¹ The federal government taxes the estate, not the heir, and only the portion above $15 million owes anything. A handful of states impose their own estate or inheritance taxes with much lower thresholds, and a few specific assets—chiefly inherited retirement accounts—carry income tax consequences even when no estate tax applies. What amount of inheritance is tax free for you depends on the size of the estate, what type of assets you receive, your relationship to the person who died, and which state they lived in.

The $15 Million Federal Threshold

The IRS looks at the total value of everything the deceased person owned. If that total is $15 million or less, no federal estate tax is due and heirs receive their shares without any federal bill attached.²

That figure jumped recently. The One Big Beautiful Bill Act, signed in July 2025, raised the basic exclusion amount from its previous inflation-adjusted level of about $13.99 million to $15 million.¹ Starting in 2027, the $15 million base adjusts upward each year for inflation.²

When an estate does exceed the exemption, only the excess is taxed. Rates are graduated, starting at 18% and climbing to a top rate of 40%.³ An estate worth $16 million owes tax on roughly $1 million, not on the full $16 million. The estate settles that bill before distributing anything, so beneficiaries almost never write a check to the IRS themselves.

Inheritances Between Spouses Are Unlimited

Federal law lets one spouse leave any amount of assets to the other with zero federal estate tax.⁴ There is no dollar cap. A $500 million estate passing entirely to a surviving spouse owes nothing at the federal level. The tax is deferred until the surviving spouse eventually passes the assets on.

One important limit: the unlimited marital deduction applies only when the surviving spouse is a U.S. citizen. A non-citizen spouse, including a permanent resident, does not qualify unless the assets pass through a Qualified Domestic Trust (QDOT), which the executor must elect on the estate tax return.⁵

Married Couples Can Shield Up to $30 Million

A surviving spouse can inherit the portion of the federal exemption that the first spouse didn’t use. The tax code calls this the deceased spousal unused exclusion amount; estate planners just call it portability.² If the first spouse dies in 2026 with a $5 million estate, the remaining $10 million of unused exemption can transfer to the survivor, giving them a combined exemption of $25 million. With planning, a couple can protect up to $30 million from federal estate tax.

Portability is not automatic. The executor of the first spouse’s estate must file Form 706 and make the portability election, even when the estate is too small to owe any tax.² Skip the filing and the unused exemption evaporates. For estates not otherwise required to file, the IRS allows a simplified late election up to five years after the first death.⁶ After that, the opportunity is gone.

State Estate and Inheritance Taxes

The federal exemption is generous. State exemptions often aren’t. Roughly a dozen states and the District of Columbia impose their own estate taxes with substantially lower thresholds—the lowest starts at just $1 million. An estate that owes nothing to the IRS can still face a significant state tax bill. Top state estate tax rates range from 12% to 20%.

Five states impose a separate inheritance tax, where the tax falls on the person receiving the assets rather than on the estate. These states generally exempt surviving spouses entirely and offer reduced rates or higher exemptions for children and grandchildren. More distant relatives and unrelated beneficiaries face the steepest rates, reaching up to 16%. One state imposes both an estate tax and an inheritance tax.

Relationship matters enormously in inheritance-tax states. A surviving child might owe nothing while an unrelated friend inheriting the same amount owes thousands. If the deceased lived in a state with either type of tax, check that state’s specific exemptions and rates before assuming an inheritance is tax-free.

Inherited Retirement Accounts Are Taxed as Income

Traditional IRAs and 401(k)s are the big exception to the rule that heirs don’t pay income tax on what they inherit. These accounts were funded with pre-tax dollars, so the tax was deferred rather than eliminated. Withdrawals from an inherited traditional retirement account count as ordinary income at your regular rate, which runs from 10% to 37% for 2026.⁷

Most non-spouse beneficiaries who inherit a retirement account from someone who died in 2020 or later must empty the entire account within 10 years of the owner’s death.⁸ Withdrawals can happen on any schedule within the window, but the balance must reach zero by December 31 of the tenth year. A $500,000 inherited IRA distributed evenly adds $50,000 to your taxable income annually. Bunching withdrawals into fewer years pushes more income into higher brackets, so the timing decision is worth taking seriously.

Certain beneficiaries qualify for more favorable treatment and can stretch distributions over their own life expectancy:⁸

Surviving spouses, who can roll the account into their own IRA and withdraw on their own schedule.
Minor children of the account owner, until they reach the age of majority (the 10-year clock then starts).
Disabled or chronically ill beneficiaries, who can use life-expectancy distributions indefinitely.
Any beneficiary no more than 10 years younger than the deceased account owner.

Inherited Roth IRAs follow the same 10-year emptying rule for non-spouse beneficiaries, but qualified Roth withdrawals are income-tax-free. Inheriting a Roth of the same size is significantly more favorable than inheriting a traditional account.

Life Insurance and Appreciated Property Come Through Tax-Free

Life insurance payouts received because of the policyholder’s death are generally excluded from the beneficiary’s taxable income.⁹ Named as beneficiary on a $500,000 policy, you receive the full $500,000 with nothing to report as income. The face value can still count toward the deceased person’s gross estate for estate tax purposes if they owned the policy at death, but that only matters when the estate is already near the $15 million line.

Inherited real estate, stocks, and other appreciated investments get a step-up in basis: your tax basis resets to the fair market value on the date the owner died. If your parent bought a house in 1990 for $150,000 and it was worth $600,000 when they died, selling it at that value produces no taxable gain. The benefit covers brokerage accounts, business interests, rental properties, and collectibles. Retirement accounts are the main exception—they do not receive a step-up, because the money inside was never taxed to begin with.¹⁰

Foreign Inheritances: Tax-Free, But You Must Report

Money inherited from outside the United States generally isn’t subject to federal income tax, but it does trigger a reporting requirement. If you receive more than $100,000 from a nonresident alien or a foreign estate in a single tax year, you must file IRS Form 3520 with your income tax return (generally by April 15, with extensions).¹¹

The inheritance itself owes no tax. The penalty for failing to report it does: 5% of the total amount per month, up to 25%. On a $500,000 foreign inheritance, that ceiling translates to $125,000 in penalties for a reporting failure that owed nothing in actual tax. Distributions from a foreign trust are also reportable on Form 3520 with no minimum dollar threshold, and unlike foreign bequests they may carry income tax consequences depending on the trust’s accumulated income.¹²

So What Should You Expect to Owe?

For most beneficiaries, the answer is nothing. An estate below $15 million owes no federal estate tax, life insurance proceeds come through untaxed, and appreciated property gets a stepped-up basis that wipes out capital gains through the date of death. The situations that change the math are narrow but consequential: inherited traditional retirement accounts, estates in states with lower thresholds, foreign inheritances over $100,000, and the rare estate that crosses the federal exemption. If any of those apply, the amount that stays tax-free depends on choices—timing withdrawals, electing portability, filing Form 3520—that a beneficiary or executor has to make deliberately.

1
Internal Revenue Service. Estate and Gift Tax Updates
2
Office of the Law Revision Counsel. 26 USC 2010 Unified Credit Against Estate Tax
3
Office of the Law Revision Counsel. 26 USC 2001 Imposition and Rate of Tax
4
Office of the Law Revision Counsel. 26 USC 2056 Bequests to Surviving Spouse
5
Office of the Law Revision Counsel. 26 USC 2056A Qualified Domestic Trust
6
Internal Revenue Service. Instructions for Form 706
7
Internal Revenue Service. Federal Income Tax Rates and Brackets
8
Internal Revenue Service. Retirement Topics – Beneficiary
9
Office of the Law Revision Counsel. 26 USC 101 Certain Death Benefits
10
Office of the Law Revision Counsel. 26 USC 1014 Basis of Property Acquired From a Decedent
11
Internal Revenue Service. Gifts From Foreign Person
12
Internal Revenue Service. Instructions for Form 3520