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If you find out someone left you a little something in their will, chances are you won’t need to pay an inheritance tax on it.
There is no federal inheritance tax, and only five states have inheritance taxes.
So unless the person who died lived in one of those states, you won’t have to pay an inheritance tax. And even if you live in one of those states, you might not have to pay.
An inheritance tax is a state tax paid by the person who inherits money.
If the person who left the money lived in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, the beneficiary — the person who gets the money or asset — might need to pay an inheritance tax to that state’s department of revenue. (Note that Iowa had an inheritance tax that expired on Dec. 31, 2024.)
Where the beneficiary lives doesn’t matter. The inheritance tax is triggered by where the deceased person lived and date of death. That means a nonresident of a state might have to pay that state’s tax.
The amount of the tax and the threshold for having to pay depends on the amount of the inheritance.
Rates are progressive, meaning the more the assets, the higher the rate, and rates are based on the fair market value of the assets.
A word about estate taxes: Although they are both types of death taxes, inheritance taxes and estate taxes are not the same thing. Both are levied at the time of death, but the person who inherits the assets pays an inheritance tax while the estate of the deceased pays an estate tax, which can reduce the overall value of the estate.
Connecticut, Washington D.C., Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Washington, and Vermont have estate taxes as part of their state tax laws.
Only Maryland has both an inheritance and an estate tax.
There is also a federal estate tax, but most estates do not have to pay it. According to the Institute on Taxation and Economic Policy (ITEP), only eight out of every 10,000 people left an estate large enough to trigger the federal estate tax.
Whether or not you will pay an inheritance tax depends on where the person who died resided, how much they left you, and your relationship to them.
If the decedent lived in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you might face an inheritance tax bill to that state, even if you don’t live there.
Say you live in Florida. If someone died in Nebraska and left you money, real estate, or personal property, you might need to file a tax return to Nebraska and make a tax payment.
But it’s important to note that the closer relation you are to the deceased, the less likely you are to face tax liability for the money you inherit.
For example, surviving spouses, parents, children, and grandchildren are often exempt from paying inheritance taxes, while siblings, nieces, or nephews might need to pay. But those parameters vary by state. In some states, only a surviving spouse is exempt.
There are also thresholds about the amount of money that trigger the tax that vary by state. The higher the value of the estate, the higher the tax rate.
For example, In New Jersey, the first $25,000 of an inheritance is exempt for everyone, but then an 11% tax kicks in for the amount between $25,001 and $1,075,000 for siblings. That percentage increases to 14% for values between $1,075,001 and $1,375,000. The highest percentage, 16% kicks in at inheritances valued at over $1,700.000
A beneficiary who is not related to a decedent in New Jersey or is a nonprofit or religious institution, they pay a 15% tax on any inheritance up to $700,000 and 16% for anything over that.
Here are the states that have an inheritance tax, who is exempt from paying, who is partially exempt from payment, and the point where the tax kicks in.
Keep in mind, if someone has to pay an inheritance tax, it is on the value that is above the threshold. For example, a sibling of someone who died in New Jersey and was left $50,000 would have to pay $2,750 in taxes because there is no tax on the first $25,000 and the tax rate is 11% on the additional $25,000.
An estate tax is levied on the decedent’s estate before it is distributed to heirs, while an inheritance tax is levied on the heirs of that estate. An estate tax is on the overall value of the estate while inheritance taxes are based on the amount that goes to each beneficiary. Both are separate from income tax.
Twelve states and Washington, D.C., have estate taxes with an estate tax return. Five have an inheritance tax. Only one state, Maryland, has both.
There is also a federal estate tax and in 2025, that tax only kicks in if the valuation of the estate is more than $13,990,000.
There is no federal inheritance tax.
No. In all of the states that have an inheritance tax, spouses are exempt.
No. The inheritance tax is based on where the deceased person lived, not where the person who received the inheritance lives.
Moving to another state without an inheritance tax would save your heirs from ever having to pay inheritance taxes. But that’s not always practical.
If you live in a state with an inheritance tax, you might be able to gift some assets while you are still alive. In 2025, the IRS allows parents to give a person like a child $19,000 tax-free.
You could also buy a life insurance policy with the beneficiary receiving a death benefit, which is not taxable.
Talking to an estate planning professional can help you.
You might have to pay taxes on money received from the sale of inherited property if you sell it at a profit. If you inherit property and hold on to it, there’s no tax.
Whether you pay and the amount you pay depends on the property’s fair market value when the person who gave it to you died.