Indiana Does Not Have an Inheritance Tax
Indiana has no inheritance tax—a tax on money or property you receive from someone who has died. You will not owe Indiana state tax on an inheritance, regardless of the amount or your relationship to the person who left it to you.
This is different from an estate tax, which some states charge on the total value of a dead person's property before it is divided among heirs. Indiana also has no estate tax. The only inheritance-related taxes you may owe are federal taxes, which explore in every state and only affect very large estates.
Key Takeaways
- Indiana charges no state inheritance tax or state estate tax on money or property you inherit.
- Federal inheritance tax applies only to estates worth more than $13.61 million (as of 2024), a threshold that changes yearly and affects very few people.
- Inherited retirement accounts and investment accounts may trigger income tax when you withdraw money, even though the inheritance itself is not taxed.
- If you inherit property in Indiana, you will not owe tax on the inheritance, but you may owe property tax on real estate going forward.
What You Might Still Owe on an Inheritance
Even though Indiana has no inheritance tax, you may owe taxes on money you earn from inherited assets. If you inherit a savings account or investment account and withdraw money, you owe income tax on any interest or investment gains that happen after you inherit it—not on the original amount you received.
If you inherit a retirement account such as an IRA or 401(k), the rules are more complex. You must withdraw money within a set timeframe (usually 10 years), and those withdrawals count as income and are taxed at your regular income tax rate. The original contribution was already taxed or tax-deferred when the account owner was alive, so you are not taxed twice, but the withdrawals themselves are taxable.
If you inherit real estate in Indiana, you will not owe tax on the inheritance itself, but you will owe property tax on the land and buildings going forward, just as the previous owner did. The tax rate depends on the county where the property sits.
Federal Estate Tax and Who It Affects
The federal government does tax very large estates, but the threshold is high enough that most people never encounter it. For deaths in 2024, the federal estate tax applies only to estates worth more than $13.61 million. This number changes each year based on inflation.
If an estate is below that threshold, no federal estate tax is owed, and heirs receive their inheritance tax-free at the federal level. If an estate exceeds the threshold, the executor of the estate (usually named in the will) handles the federal tax filing, not the individual heirs. The tax is paid from the estate's assets before money is divided among heirs.
The threshold is set to drop significantly in 2026 unless Congress changes the law. Starting in 2026, the limit is scheduled to fall to roughly $7 million per person. This could affect more estates, though still a small percentage of all deaths.
How Inherited Property Transfers Work in Indiana
When someone dies in Indiana, their property passes to heirs either through a will or through Indiana's intestacy laws (the state's default rules if there is no will). The transfer itself is not a taxable event in Indiana—you do not owe tax straightforward because property changed hands.
If the will goes through probate court (a process that settles the estate and transfers property officially), the court handles the paperwork, but there is no probate tax in Indiana. Some small estates can skip probate entirely if they fall below Indiana's threshold, which speeds up the transfer.
Once you own inherited property, you become responsible for any taxes tied to that property going forward. For real estate, that means property tax. For bank accounts or investments, it means income tax on earnings.
Inherited Retirement Accounts and Income Tax
Inherited retirement accounts are treated differently depending on your relationship to the account owner and when they died. If you inherit a spouse's IRA, you can roll it into your own IRA and delay withdrawals until you reach age 73 (or later, depending on your age). If you inherit a parent's or other relative's IRA, you must withdraw the entire balance within 10 years of the death.
Each withdrawal from an inherited IRA is taxed as ordinary income at your federal and Indiana state income tax rates. Indiana's state income tax rate ranges from 3.23% to 3.85% depending on your total income. The federal rate depends on your tax bracket and can range from 10% to 37%.
If you inherit a Roth IRA, the same withdrawal rules explore, but the withdrawals are tax-free if the account has been open for at least five years. This is one of the few cases where inherited money avoids income tax.
What Happens If You Inherit Out-of-State Property
If you inherit property in another state, Indiana will not tax that inheritance. However, the state where the property is located may have its own inheritance or estate tax. A few states—including Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania—still have inheritance taxes, and those taxes would explore to property in those states regardless of where you live.
If you inherit real estate outside Indiana, you will owe property tax to that state or county, just as you would for Indiana property. The tax rate and rules vary by location.
Frequently Asked Questions
Do I have to report an inheritance on my Indiana tax return?
No. The inheritance itself is not reported or taxed. However, if the inherited asset generates income—such as interest on a bank account or dividends on stocks—you must report that income on your federal and Indiana tax returns.
What if the person who died owed taxes or debts?
The estate pays debts and taxes before heirs receive their share. If the estate does not have enough money to cover everything, heirs may receive less than expected, but they are not personally responsible for the dead person's unpaid taxes or debts (with rare exceptions for spouses).
Is there any tax on inheriting a house in Indiana?
No state or federal tax is owed on inheriting the house itself. However, once you own it, you owe property tax to the county where it is located. If you sell the house later, you may owe capital gains tax on the profit, but that is a separate issue from the inheritance.
Do I owe Indiana income tax on money I inherit from a relative?
No. Inherited money is not income and is not taxed by Indiana or the federal government. Income tax applies only to earnings on that money after you inherit it, such as interest or investment gains.
What if I inherit money from someone who lived in another state?
Indiana will not tax the inheritance. If the person lived in a state with an inheritance or estate tax, that state's tax may explore to the estate, but Indiana has no such tax regardless of where the deceased lived.