Do You Pay Taxes on an Inheritance?
Usually not federally. There is no federal inheritance tax, and the federal estate tax is paid by the estate only when it exceeds $15 million in 2026. Five states, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, tax some heirs, depending on their relationship to the deceased. Inherited property generally gets a stepped-up tax basis, but withdrawals from inherited traditional retirement accounts are taxable income.
Receiving an inheritance can trigger questions about several different taxes. Most heirs owe little or nothing, but the details matter.
Federal income tax
Generally, inherited cash and property are not income to the heir for federal income tax purposes (IRS). Income the property produces after you receive it, such as interest, dividends or rent, is taxable.
Federal estate tax
The estate tax is paid by the estate, not the heirs, and only on large estates. In 2026 the exemption is $15 million per person. See how much is the federal estate tax.
State inheritance taxes
As of 2026, five states impose an inheritance tax, paid by certain heirs: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania (Creative Planning). Spouses are generally exempt, and close relatives such as children often pay little or nothing, while more distant relatives and unrelated heirs pay higher rates. Which state's tax applies depends mainly on where the deceased lived and where real estate is located.
A dozen states and DC also have their own estate taxes with exemptions far lower than the federal amount.
Capital gains: the stepped-up basis
Property inherited from a decedent generally receives a tax basis equal to its fair market value at the date of death (26 U.S.C. 1014). If you sell soon after inheriting, there may be little or no capital gain. Get an appraisal or date-of-death values.
Inherited retirement accounts
- Withdrawals from inherited traditional IRAs and 401(k)s are taxed as ordinary income.
- Many non-spouse beneficiaries must empty inherited accounts within 10 years under current rules; spouses have more options (IRS).
- Roth account withdrawals are usually tax-free if requirements are met.
Life insurance
Life insurance proceeds paid because of the insured's death are generally not taxable income, although interest on delayed payouts is.
Inheriting debt
Heirs generally are not personally liable for the deceased's debts, which are paid from the estate. See how probate works.
For tax filing questions, talk to a tax professional; for estate administration, an estate planning lawyer.
Sources
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This article is general legal information, not legal advice, and reading it does not create an attorney-client relationship. Laws differ by state and change over time; talk to a licensed attorney in your state about your situation.