Is inheritance taxable?

In most cases, an inheritance is not taxable income at the federal level, and you do not have to report cash, stocks, real estate, or life insurance proceeds on your federal tax return.

However, you may have to pay taxes in specific situations:

1. State Inheritance Taxes

The federal government does not levy an inheritance tax, but five states currently impose a state inheritance tax on beneficiaries based on what you inherit and your relationship to the deceased:

• Kentucky
• Maryland (which also has a separate estate tax)
• Nebraska
• New Jersey
• Pennsylvania

Spouses are almost always exempt, and close family members often receive lower rates or full exemptions, while distant relatives and non-relatives pay higher rates.

2. Inherited Retirement Accounts

If you inherit a traditional IRA, 401(k), or other pre-tax retirement account, distributions are taxed as ordinary income when you withdraw money from the account. Inherited Roth IRAs are generally tax-free if the account has met the required holding period (typically five years).

3. Subsequent Earnings and Capital Gains

• Asset earnings: Any interest, dividends, or rental income generated by the inherited assets after the date of death is taxable to you.
• Selling property or stocks: If you sell an inherited home, land, or stock for more than its fair market value at the time of the person's death, you may owe capital gains tax only on the profit (appreciation) that occurred after they passed away (thanks to the "stepped-up basis" rule). If you sell it for the same or less than that value, you generally owe no capital gains tax.

4. Estate Taxes (Paid by the Estate)

An estate tax is different from an inheritance tax; it is paid by the deceased person's estate before assets are distributed to heirs.

• At the federal level, the estate tax only applies to estates valued above $15 million per individual (for deaths in 2026).
• Several states also levy their own state estate taxes with lower exemption thresholds.

You can check your specific situation or walk through interactive questions using the Internal Revenue Service Interactive Tax Assistant.

No, you generally do not need to report a standard inheritance on your federal tax return because the IRS does not consider inherited cash, property, or life insurance proceeds as taxable income.

When You Might Need to Report or Pay Taxes

• Retirement Accounts: If you inherit a traditional IRA or 401(k), any money you withdraw counts as ordinary taxable income and must be reported on your tax return.
• Income Generated Later: If the inherited assets earn money after you receive them—such as interest from a bank account, dividends from stocks, or rental income from a property—you must report that specific income.
• Selling Property: If you sell inherited real estate or stocks, you only report and pay capital gains tax on the value that the asset increased after the date of the original owner's death.
• Foreign Inheritances: If you receive a large inheritance from a foreign estate or a non-resident alien exceeding $100,000, you may need to file a disclosure notice with the IRS using Form 3520.
• State Taxes: While there is no federal inheritance tax, a small number of states levy a state-level inheritance tax on the person receiving the funds.

At the federal level, you can inherit up to $15 million as an individual (or up to $30 million if the deceased was married and used portability) without the estate paying any federal estate tax.

As the recipient, you generally pay $0 in federal taxes on the inheritance itself, as the federal government does not have an inheritance tax; any federal tax is paid by the deceased person’s estate before the money is distributed to you.

However, whether you will owe taxes depends on three distinct factors: where the deceased lived, your relationship to them, and the type of assets you inherit.

1. State Inheritance and Estate Taxes

Even though there is no federal inheritance tax, several states impose their own taxes, which may apply to smaller amounts.

• State Inheritance Tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania levy a tax directly on the recipient. The tax-free amount depends heavily on your relationship to the deceased. Spouses and children are often completely exempt, while more distant relatives or friends face lower tax-free thresholds and tax rates between 10% and 16%.
• State Estate Tax: 12 states plus Washington, D.C., levy an estate tax. Some states have exemption thresholds much lower than the federal limit—for example, Oregon taxes estates valued over $1 million.

2. The Type of Asset You Inherit

While raw cash or a standard bank account passes to you tax-free, specific asset types carry their own tax rules:

Summary Checklist for Heirs

• Federal income tax: You do not report your inheritance on your federal income tax return.
• Spouses: If you are inheriting from a U.S. citizen spouse, transfers are 100% tax-free regardless of the amount due to the unlimited marital deduction.
• Future Earnings: Once the inherited money is yours, any new interest, dividends, or capital gains it generates moving forward will be subject to normal income taxes.

You generally pay $0 in federal tax on a $100,000 inheritance, but you might owe state inheritance tax depending on where you live and your relationship to the person who died.

Federal Taxes

• Income tax: The federal government does not count cash inheritances as taxable income.
• Estate tax: The tax is paid by the estate itself before you receive the money, and the 2026 federal exemption is $15 million per individual.

State Inheritance Taxes

• Most states do not have an inheritance tax.
• Only five states levy an inheritance tax on the recipient: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
• Spouses are exempt in all five states. Children and close relatives are also exempt or taxed at very low rates in most of these states, though distant relatives or unrelated heirs face rates ranging from 1% to 16%.

You do not have to claim most inheritances as income on your federal tax return.

General Rules for Inheritance

• No Income Tax: Cash, houses, and stocks you inherit are not taxable income when you receive them. You do not report the initial value to the IRS.
• Estate Taxes: If the estate owes federal or state taxes, the Internal Revenue Service requires the estate's executor to pay those before assets are distributed. Beneficiaries do not pay them.
• State Taxes: A small number of states charge a state inheritance tax to the person receiving the money.

Important Exceptions

• Retirement Accounts: Withdrawals from inherited traditional IRAs or 401(k) plans count as ordinary income. You must pay income tax on the money you take out.
• Future Earnings: Money made after you receive the inheritance—such as bank interest, stock dividends, or rent—is taxable income.
• Selling Property: If you sell an inherited house or stock for more than its value on the day the person died, you must pay capital gains tax on the extra profit.

You can use the Interactive Tax Assistant from the IRS to check specific scenarios.