There is no federal inheritance tax, so the practical inheritance tax limit for most Americans is set by the federal estate tax, which in 2026 exempts the first $15,000,000 of a deceased person’s estate.1Internal Revenue Service. What’s New – Estate and Gift Tax Estates below that figure owe nothing to the IRS, and heirs receive their inheritances tax-free at the federal level. Five states charge a separate inheritance tax that the recipient pays, and about a dozen states impose their own estate tax at thresholds far below the federal one. Where the deceased lived, where the property sits, and your relationship to the person who died all shape whether any tax comes out of what you receive.
The $15,000,000 Federal Estate Tax Exemption
For deaths in 2026, the basic exclusion amount is $15,000,000 per person. Congress set that figure in the One, Big, Beautiful Bill signed on July 4, 2025, amending the unified credit under 26 U.S.C. ยง 2010 and replacing the earlier scheduled sunset of the Tax Cuts and Jobs Act provisions, which would have cut the exemption roughly in half.2Internal Revenue Service. What’s New – Estate and Gift Tax Going forward, the $15,000,000 figure will be adjusted for inflation and rounded to the nearest $10,000.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
The estate tax is a tax on the right to transfer property at death, not a tax on the person inheriting it.4Internal Revenue Service. Estate and Gift Taxes The executor tallies everything the deceased owned, subtracts debts, funeral costs, and charitable bequests, and applies the unified credit. If the net estate lands at or below $15,000,000, no federal tax is due. That threshold shields nearly every estate in the country.
How Married Couples Can Shield Up to $30,000,000
When the first spouse dies without using the full exemption, the leftover amount can transfer to the survivor. The IRS calls this portability, and it can bring the combined shield for a married couple to $30,000,000.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
Portability is not automatic. The executor of the first spouse’s estate has to file IRS Form 706, even when no tax is due, and affirmatively elect portability on that return. Miss the filing, and the surviving spouse loses the unused exemption for good. Once made, the election is irrevocable, and the return has to arrive within the deadline including any IRS-granted extension.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Skipping Form 706 to save on preparation costs is one of the more expensive mistakes in estate planning.
Lifetime Gifts Count Against the Limit
The estate tax and the gift tax share one lifetime exemption. Every dollar given away above the annual gift exclusion during your lifetime reduces what’s left to shelter your estate at death. The annual gift exclusion for 2026 is $19,000 per recipient.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 You can give $19,000 to as many separate people as you want each year without filing a gift tax return or touching the lifetime figure. A married couple can each give $19,000 to the same person, so a set of parents can transfer $38,000 per child per year with no paperwork.
Gifts above the annual exclusion don’t create an immediate tax bill. They just chip away at the lifetime exemption. Hand a child $119,000 in one year, and the first $19,000 is covered by the annual exclusion while the remaining $100,000 comes off the $15,000,000 unified credit, leaving $14,900,000 to shelter the estate later. For gifts to a spouse who is not a U.S. citizen, the annual exclusion is much higher at $194,000 in 2026.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
States That Charge Inheritance Tax
Five states impose an inheritance tax paid by the person receiving the assets: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa repealed its inheritance tax effective January 1, 2025. These taxes attach based on where the deceased lived or where certain tangible property was located, so a resident of a no-tax state can still owe when inheriting from someone in one of the five.
The rate depends on your relationship to the person who died. Surviving spouses are exempt in all five states. Children and other close relatives face low rates or none at all. Distant relatives and unrelated beneficiaries face the highest rates. Pennsylvania shows the pattern:
- Surviving spouse, or a parent inheriting from a child under 21: 0 percent
- Children and direct descendants: 4.5 percent
- Siblings: 12 percent
- All other heirs: 15 percent
Kentucky and New Jersey top out at 16 percent for non-exempt beneficiaries. Nebraska tops out at 15 percent. Maryland charges a flat 10 percent on non-exempt beneficiaries and is the one state that imposes both an estate tax and an inheritance tax, so a large Maryland estate passing to a non-exempt heir can be taxed twice. In most of these states, the executor withholds the inheritance tax before distributing anything, so the amount you receive already reflects it.
States With Their Own Estate Tax
Roughly a dozen states plus the District of Columbia levy a state estate tax on top of the federal one, and their thresholds sit far below $15,000,000. An estate that owes nothing federally can still owe a substantial state bill.
Oregon’s threshold is $1,000,000. Massachusetts starts at $2,000,000, Washington at $2,193,000, Minnesota at $3,000,000, Illinois at $4,000,000, the District of Columbia at $4,715,600, Rhode Island at $1,774,583, and Connecticut at $13,610,000.6ACTEC. State Death Tax Chart Hawaii, Maine, New York, and Vermont also impose estate taxes.
Some of these are “cliff” taxes, meaning that once the estate crosses the threshold, the entire estate becomes taxable rather than just the amount above the line. New York is the prominent example. An estate that exceeds the threshold by a hundred dollars can face a tax bill tens of thousands larger than one that came in just below. Precise valuation matters more in cliff states than almost anywhere else.
What Counts Toward the Estate
The gross estate includes the fair market value of everything the deceased owned or had certain interests in at death: real estate, bank and investment accounts, closely held businesses, personal property, and retirement accounts.7Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate
Life insurance often surprises families. Proceeds count toward the gross estate if the deceased held any “incidents of ownership” in the policy at death, meaning the right to change beneficiaries, borrow against it, or cancel it. A $2,000,000 payout to a named beneficiary is still part of the taxable estate when the deceased owned the policy.8Office of the Law Revision Counsel. 26 USC 2042 – Proceeds of Life Insurance Transferring ownership to an irrevocable trust at least three years before death is a common way to keep it out.
Assets are valued at fair market value on the date of death. Real estate, artwork, jewelry, and business interests typically require professional appraisals. Publicly traded stocks use the closing price on the date of death, and bank and bond accounts use their date-of-death statement value.
The Step-Up in Basis
One rule benefits nearly every heir, even those whose inheritances are nowhere near any tax threshold. When you inherit an asset, your cost basis for capital gains purposes resets to the fair market value on the date of death.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If a parent bought stock for $50,000 and it was worth $500,000 at death, your basis becomes $500,000. Sell it soon after for $505,000, and you owe capital gains tax on the $5,000 gain, not on the $450,000 of appreciation during your parent’s lifetime. The step-up wipes out decades of unrealized gains for the person inheriting.
Rates and Deadlines When Tax Is Owed
Estates above the $15,000,000 exemption face graduated rates that start at 18 percent and climb to 40 percent on amounts more than $1,000,000 over the exemption.10Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Most taxable estates land in the 40 percent bracket because the lower brackets cover only small amounts.
The executor files Form 706 within nine months of the date of death. A six-month extension for the paperwork is available if requested before the original deadline, but the tax itself is still due at nine months. The extension buys time to finish the return, not time to pay. Interest accrues on any unpaid tax from the original due date.11Internal Revenue Service. Filing Estate and Gift Tax Returns Executors who need more time should estimate the tax, pay by the nine-month mark, and file the completed return during the extension window.
Non-U.S. Citizens Face a Much Lower Limit
The rules shift sharply for non-resident aliens. Instead of $15,000,000, the filing threshold for a non-resident who is not a U.S. citizen is just $60,000 in U.S.-situated assets, and that figure is not indexed for inflation.12Internal Revenue Service. Estate Tax for Nonresidents Not Citizens of the United States U.S.-situated assets include American real estate, tangible personal property located in the United States, and stock in domestic corporations.
When a non-resident decedent’s U.S. assets exceed $60,000, the executor files Form 706-NA.13Internal Revenue Service. Some Nonresidents With US Assets Must File Estate Tax Returns Tax treaties between the U.S. and several other countries can raise the available credit or change which assets count as U.S.-situated, so actual liability depends on the decedent’s country of residence.