Inheriting money or assets can be complicated by taxes — but most people don’t owe as much as they fear. This guide explains federal estate tax, state inheritance taxes, and how to calculate your potential liability.
Estate Tax vs. Inheritance Tax
These two taxes are often confused but work very differently. Estate tax is levied on the total value of a deceased person’s estate before anything is distributed — it’s the estate’s obligation, not the beneficiary’s. Inheritance tax, by contrast, is paid by each individual beneficiary based on what they receive and their relationship to the deceased. Only six states impose inheritance tax, and the rates vary dramatically depending on whether you’re a spouse, child, or more distant relative.
Type
Who Pays
What’s Taxed
Where Applied
Estate Tax
The estate (before distribution)
Total estate value
Federal + 12 states + DC
Inheritance Tax
Beneficiaries (after receiving)
Each beneficiary’s share
6 states
Income Tax
Beneficiary
IRA/401(k) distributions
All states with income tax
Federal Estate Tax (2026)
The vast majority of Americans will never owe federal estate tax. With a $15 million individual exemption in 2026 (up from $13.99 million in 2025), fewer than 0.2% of estates — roughly 4,000 per year — owe anything to the IRS. Married couples can effectively double this through portability, sheltering up to $30 million combined. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made the $15 million exemption permanent, canceling the scheduled Tax Cuts and Jobs Act sunset that would have cut it to roughly $7 million after 2025.
Item
2026 Value
Exemption (individual)
$15 million
Exemption (married, with portability)
$30 million
Maximum tax rate
40%
Estates owing federal tax
<0.2% (about 4,000/year)
Federal Estate Tax Brackets
Taxable Estate (Above Exemption)
Tax Rate
$0 - $10,000
18%
$10,001 - $20,000
20%
$20,001 - $40,000
22%
$40,001 - $60,000
24%
$60,001 - $80,000
26%
$80,001 - $100,000
28%
$100,001 - $150,000
30%
$150,001 - $250,000
32%
$250,001 - $500,000
34%
$500,001 - $750,000
37%
$750,001 - $1,000,000
39%
Over $1,000,000
40%
Federal Estate Tax Calculation Example
Item
Amount
Gross estate
$16,000,000
Debts and expenses
($500,000)
Taxable estate
$15,500,000
Less exemption
($15,000,000)
Amount subject to tax
$500,000
Estate tax owed
~$156,000
States With Inheritance Tax (2026)
Inheritance tax is a state-level tax paid by the person receiving assets, not the estate itself. The tax rate depends almost entirely on your relationship to the deceased: spouses are exempt in every state, children are exempt in most, but siblings, nieces, nephews, and unrelated beneficiaries can face rates as high as 18%. Pennsylvania is notably the only state that taxes inheritance from parents to children.
Only 6 states have inheritance tax:
State
Exemptions
Rates
Iowa
Spouses, lineal descendants exempt
2-6% (others)
Kentucky
Spouses, children, parents exempt
4-16%
Maryland
Spouses, children, parents exempt
10%
Nebraska
Spouses exempt
1-18%
New Jersey
Spouses, children, parents exempt
11-16%
Pennsylvania
Spouses exempt
0-15%
Inheritance Tax by Relationship
State
Spouse
Children
Siblings
Others
Iowa
0%
0%
2-6%
2-6%
Kentucky
0%
0%
4-16%
6-16%
Maryland
0%
0%
10%
10%
Nebraska
0%
1%
13%
18%
New Jersey
0%
0%
11-16%
15-16%
Pennsylvania
0%
4.5%
12%
15%
States With Estate Tax (2026)
Twelve states plus DC impose their own estate tax with exemptions well below the federal threshold, several with historically low exemptions in the $1–2 million range (Oregon and Massachusetts among them) — meaning a modest home plus retirement savings can trigger state estate tax even when the estate is well below the federal level. Several states index their exemption for inflation annually, so a specific dollar figure here would go stale quickly; see our full estate tax by state guide and confirm the current-year exemption and rate with that state’s tax authority before relying on it for planning.
Note: Maryland has BOTH estate tax AND inheritance tax.
State Estate Tax Calculation Example (Illustrative — Not Current Massachusetts Figures)
This example shows the calculation method only. Confirm Massachusetts’s actual current exemption before using these numbers for real planning.
Item
Amount
Estate value
$3,500,000
State exemption (illustrative)
$2,000,000
Taxable amount
$1,500,000
State estate tax (illustrative, ~16% top rate)
~$147,000
Inheritance Tax Calculation Examples
Example 1: Pennsylvania (Child Inheriting $500,000)
Item
Amount
Inheritance
$500,000
Pennsylvania rate (children)
4.5%
Tax owed
$22,500
Example 2: New Jersey (Sibling Inheriting $500,000)
Item
Amount
Inheritance
$500,000
New Jersey exemption (siblings)
$25,000
Taxable amount
$475,000
Tax rate
11-16% (graduated)
Approximate tax
$60,000-70,000
Example 3: Nebraska (Niece Inheriting $200,000)
Item
Amount
Inheritance
$200,000
Nebraska exemption (remote relatives)
$25,000
Taxable amount
$175,000
Rate (remote relatives)
18%
Tax owed
$31,500
Inheriting Retirement Accounts
Retirement account inheritance has its own set of rules that are entirely separate from estate and inheritance tax. The SECURE Act of 2019 eliminated the “stretch IRA” for most non-spouse beneficiaries, requiring the account to be emptied within 10 years. For large traditional IRAs, this can create a significant income tax burden as distributions are taxed at ordinary income rates — potentially pushing you into a higher bracket.
Account Type
Tax Treatment
Traditional IRA/401(k)
Withdrawals taxed as income
Roth IRA/401(k)
Withdrawals tax-free (if qualified)
Non-spouse beneficiary
Must empty within 10 years
Spouse beneficiary
Can roll to own IRA
Inherited IRA Distribution Requirements
Beneficiary Type
Required Distribution
Spouse
Can treat as own; no RMDs until 73
Non-spouse (younger)
10-year rule; annual RMDs may apply
Non-spouse (older/disabled)
Life expectancy method
Non-designated (estate)
5-year rule or life expectancy
Tax Planning for Inherited IRAs
Strategy
Benefit
Spread distributions over 10 years
Avoid jumping tax brackets
Take more in low-income years
Lower marginal rate
Coordinate with other income
Roth conversions, capital gains
Consider state taxes
Some states don’t tax retirement income
Stepped-Up Basis for Inherited Assets
When you inherit non-retirement assets, you get a stepped-up basis:
Scenario
Original Cost
Value at Death
Your New Basis
Gain if Sold at $600k
Without step-up
$100,000
$500,000
$100,000
$500,000 taxable
With step-up
$100,000
$500,000
$500,000
$100,000 taxable
This eliminates capital gains on appreciation during the decedent’s lifetime.
Assets That Receive Step-Up
Gets Step-Up
No Step-Up
Stocks
Traditional IRA
Real estate
401(k)
Mutual funds
Annuities
Business interests
Savings bonds (depends)
Collectibles
Income in respect of decedent
Strategies to Minimize Estate/Inheritance Tax
Estate tax planning centres on reducing the size of your taxable estate before death. The most straightforward approach is lifetime giving: the $19,000 annual gift exclusion lets you transfer wealth to family members every year without using any of your lifetime exemption. For larger estates, trusts can freeze asset values, remove life insurance proceeds, and provide income to charities while preserving wealth for heirs.
Lifetime Giving
Strategy
How It Works
Annual gift exclusion
$19,000/person/year (2026) tax-free
Lifetime gift exemption
$15M (same as estate exemption)
529 plan superfunding
5 years of gifts at once
Direct tuition/medical payments
Unlimited if paid directly
Trusts
Trust Type
Purpose
Irrevocable Life Insurance Trust (ILIT)
Remove life insurance from estate
Charitable Remainder Trust
Income + charity + estate reduction
Grantor Retained Annuity Trust (GRAT)
Transfer appreciation tax-free
Qualified Personal Residence Trust (QPRT)
Transfer home at reduced value
Other Strategies
Strategy
Benefit
Spousal transfers
Unlimited marital deduction
Charitable donations
Reduce taxable estate
Family Limited Partnership
Discount asset values
Portability election
Use deceased spouse’s exemption
What to Do When You Receive an Inheritance
Step
Action
1
Don’t make major decisions for 6-12 months
2
Understand what you’re inheriting (assets, debts)
3
Determine tax implications
4
Update beneficiaries on your own accounts
5
Consider working with a financial advisor
6
Create a plan for the assets
The TCJA Sunset Was Averted: 2026 Status
Update: The exemption’s scheduled sunset did not happen. Under the original Tax Cuts and Jobs Act, the enhanced exemption was set to revert to approximately $7 million (inflation-adjusted 2017 level) after December 31, 2025. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, canceled that sunset and permanently set the exemption at $15 million per person starting in 2026, with inflation indexing to resume in 2027.
Period
Exemption
2024
$13.61M
2025
$13.99M
2026 (permanent under OBBBA)
$15M
Estates that would have faced a significantly lower exemption under the old sunset schedule no longer need to rush gifting or trust planning to “beat a deadline” — the higher exemption is now permanent law. That said, estate planning is still worthwhile for large or complex estates; work with an estate planning attorney to review your specific situation.
State-by-State Quick Reference
No Estate or Inheritance Tax
State
Status
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, Wyoming
WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.
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