Do I Owe Tax on My Inheritance?
We hear this question at almost every workshop, usually from someone who just lost a parent: "Do I have to pay tax on what Mom left me?" For most people the honest answer is no, not for receiving it. But some of what you inherit is taxed later, when you use it, and five states do tax the inheritance itself.
An inheritance tax is paid by the heir on what they receive. Only five states have one, and the rate depends on how closely you were related.
An estate tax is paid by the estate before anything is handed out. Twelve states, Washington, DC and the federal government have one, but most families are under the line.
Check your inheritance in 30 seconds
Pick the state where the person who died lived. If they owned real estate in another state, check that state too, because inheritance tax follows the property.
Educational estimate for a death in 2026, before any discounts, deductions or exempt property such as life insurance paid to a named beneficiary. It does not include income tax on retirement accounts, covered below.
The five states with an inheritance tax in 2026
Every other state, including California, Florida, Texas and New York, has no inheritance tax. Iowa ended its inheritance tax for deaths on or after January 1, 2025.
| State | Spouse | Children | Brother or sister | Niece or nephew | Friend or other |
|---|---|---|---|---|---|
| Pennsylvania | 0% | 4.5% | 12% | 15% | 15% |
| New Jersey | 0% | 0% | 11% to 16% over $25,000 | 15% to 16% | 15% to 16% |
| Kentucky | 0% | 0% | 0% | 0% | 6% to 16% |
| Nebraska | 0% | 1% over $100,000 | 1% over $100,000 | 11% over $40,000 | 15% over $25,000 |
| Maryland | 0% | 0% | 0% | 10% | 10% |
- Pennsylvania taxes children from the first dollar, but takes 5% off if the tax is paid within three months of the death.
- Nebraska exempts anyone under age 22, and the tax is collected by the county.
- Kentucky moved nieces and nephews to the exempt class for deaths in 2026.
- Maryland is the only state with both an inheritance tax and an estate tax.
- Life insurance paid to a named beneficiary is generally not subject to these state inheritance taxes.
What heirs actually pay tax on
Even in a state with no inheritance tax, some inherited money is taxed. Here is how each kind of asset works:
| What you inherit | Taxed when you get it? | Taxed later? |
|---|---|---|
| Cash, savings, CDs | No | Only the interest earned after the death |
| House, land, stocks | No | Only the gain after the death. The cost basis "steps up" to the value on the date of death. |
| Traditional IRA or 401(k) | No | Yes. Every dollar you withdraw is ordinary income, and most heirs must empty the account within 10 years. |
| Roth IRA | No | Usually no, if the account was open at least 5 years. The 10-year rule still applies. |
| Annuity | No | Yes, on the growth above what the owner paid in. |
| Installment note from a sale | No | Yes. The deferred gain does not step up, so each payment you collect is still taxed. |
| Life insurance payout | No | No income tax on the death benefit itself. |
For most families the biggest tax is on retirement accounts. A $500,000 traditional IRA left to a child in their peak earning years can mean $150,000 or more of federal and state income tax as it comes out. Our guides on the inherited IRA 10-year rule and spouse vs non-spouse rules show how to spread it out, and the inherited IRA calculator runs the numbers. If you plan to sell an inherited house, see taxes when you sell inherited property.
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If you live in California
California has no inheritance tax and no estate tax. You owe the state nothing for receiving an inheritance. What still matters for California heirs:
- If the person who died lived in Pennsylvania, New Jersey, Kentucky, Nebraska or Maryland, that state's inheritance tax can apply to you even though you live in California.
- Withdrawals from an inherited IRA or 401(k) are taxed by California as ordinary income, at rates up to 13.3%.
- Under Proposition 19, a child who inherits a parent's home keeps the low property tax only by moving in, and only up to a limit. An inherited rental is reassessed to market value. Our California retirement tax guide covers the details.
The estate tax: paid before you inherit
An estate tax comes out of the estate before heirs are paid. The federal estate tax only applies to estates over $15,000,000 per person in 2026. Twelve states and Washington, DC set the line much lower:
| State | Estate tax starts above | Top rate |
|---|---|---|
| Connecticut | $15,000,000 | 12% |
| District of Columbia | $4,988,400 | 16% |
| Hawaii | $5,490,000 | 20% |
| Illinois | $4,000,000 | 16% |
| Maine | $7,160,000 | 12% |
| Maryland | $5,000,000 | 16% |
| Massachusetts | $2,000,000 | 16% |
| Minnesota | $3,000,000 | 16% |
| New York | $7,350,000 | 16% |
| Oregon | $1,000,000 | 16% |
| Rhode Island | $1,838,056 | 16% |
| Vermont | $5,000,000 | 16% |
| Washington | $3,000,000 | 20% |
Massachusetts and Oregon catch the most ordinary families. A $3,000,000 Massachusetts estate, often just a house and retirement savings, owes about $82,400 in 2026. Families who expect an estate tax bill usually plan ahead with an estate attorney, using tools such as trusts, lifetime gifts and life insurance owned by a trust. If you are the executor, the estate tax return is generally due nine months after the death.
What to do in the first months
- Find out which state's rules apply. It is where the person lived, plus any state where they owned real estate.
- Do not cash out an inherited IRA in a hurry. A lump sum can push you into a much higher bracket. Retitle it as an inherited IRA first.
- Get date-of-death values for the house, stocks and other property. They set your new cost basis.
- Watch the deadlines. Pennsylvania's 5% discount ends three months after the death. Most state inheritance and estate taxes are due within nine months.
Common questions
Is there a federal inheritance tax?
No. The federal government has an estate tax, paid by the estate, which only applies to estates over $15,000,000 per person in 2026. Heirs do not pay a federal tax just for receiving an inheritance.
Which states have an inheritance tax in 2026?
Pennsylvania, New Jersey, Kentucky, Nebraska and Maryland. Iowa repealed its inheritance tax for deaths on or after January 1, 2025.
Does California have an inheritance tax?
No. California has had no inheritance tax or estate tax since 1982. A California heir can still owe another state's inheritance tax if the person who died lived in, or owned property in, one of the five inheritance-tax states.
Do I pay inheritance tax if I live in a different state?
It depends on where the person who died lived and where their real estate is, not where you live. A California resident who inherits from a parent in Pennsylvania can owe Pennsylvania inheritance tax.
Do I pay income tax on an inherited IRA?
Yes, for a traditional IRA or 401(k). Each withdrawal is ordinary income to you, and most non-spouse heirs must empty the account within 10 years. Inherited Roth IRAs are usually income tax free.
Do I pay capital gains tax on an inherited house?
Only on the gain after the date of death. Your cost basis steps up to the home's value when the owner died, so selling soon afterward often means little or no capital gains tax.
What is the difference between an estate tax and an inheritance tax?
An estate tax is paid by the estate before anything is distributed and is based on the total estate. An inheritance tax is paid by each heir on their share, and the rate depends on the heir's relationship to the person who died.
See the tax on an inherited IRA
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Run the free calculatorRelated guides
The Inherited IRA 10-Year RuleWhen the money has to come out, and how to spread the tax.Taxes When You Sell Inherited PropertyThe step-up in basis, with examples.California Retirement Tax GuideProp 19 and what California taxes.The Retirement Literacy Foundation is a 501(c)(3) non-profit. This guide is general financial education, not individualized investment, tax, or insurance advice. Tax rules change and depend on your personal situation. Consider speaking with a licensed professional before making decisions.
Hans Goldstein, EA
Founder & Executive Director · Retirement Literacy Foundation, a 501(c)(3) non-profit
Admitted to practice before the IRS
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