Michigan does not have an inheritance tax or estate tax

Michigan has no inheritance tax — a tax on money or property you receive from someone who died — and no estate tax — a tax on the total value of what someone leaves behind. If you inherit from a Michigan resident or own property in Michigan, you will not owe Michigan state tax on that inheritance.

This is different from the federal estate tax, which applies only to very large estates. The federal threshold is high enough that most people never encounter it. Michigan's lack of both state taxes makes it simpler than some neighbouring states, where heirs do face state-level taxes on what they receive.

Key Takeaways

  • Michigan imposes no state inheritance tax or estate tax on money or property you receive from someone who died.
  • The federal estate tax applies only to estates worth more than a certain amount, which changes yearly and affects very few people.
  • Some states tax heirs directly; Michigan does not, though you may still owe federal tax depending on the estate's total value.
  • Income earned by an inherited account or property after you receive it is taxable in Michigan, but the inheritance itself is not.

How Michigan's lack of inheritance tax affects what you receive

When someone dies and leaves you money, property, or other assets in Michigan, you receive the full amount without a state tax deduction. The estate itself — the total value of everything the person owned — does not pay a Michigan tax either. This means the executor or personal representative handling the estate does not have to set aside funds for a state inheritance or estate tax.

If the same person died in a state like Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, heirs would owe that state a tax on what they inherited. Michigan heirs do not face this cost. The money that would have gone to a state tax stays in the inheritance.

Federal estate tax and when it actually applies

The federal government does tax very large estates, but the threshold is high. In 2024, the federal estate tax applies only to estates worth more than $13.61 million. This amount changes yearly and is set by Congress. For most people, the federal estate tax never comes into play.

If an estate does exceed the federal threshold, the executor must file a federal estate tax return and pay tax on the amount above the limit. Michigan does not add a state tax on top of this. The federal tax is the only one owed at the state or federal level.

Income tax on inherited accounts and property

While Michigan does not tax the inheritance itself, you may owe Michigan income tax on money that the inherited account or property earns after you receive it. If you inherit a savings account and it earns interest, that interest is taxable income in Michigan. If you inherit rental property and collect rent, that rent is taxable income.

The original inheritance — the principal amount or the property itself — is not taxed. Only the earnings that come after you own it are subject to Michigan income tax. This is an important distinction: the gift is tax-free, but the income it generates is not.

Inherited retirement accounts and special rules

Inherited retirement accounts like IRAs and 401(k)s have their own federal rules that affect how much tax you owe. Michigan does not impose a separate state tax on these accounts, but federal rules determine how quickly you must withdraw the money and how much federal income tax you pay on those withdrawals.

The type of account, your relationship to the person who died, and the year of death all affect your withdrawal timeline and tax bill. A financial advisor or tax professional can walk you through the specific rules for your inherited account, but Michigan itself does not add a state-level tax on top of the federal rules.

What happens if you inherit property in another state

If you inherit property located in another state — such as real estate, a business, or a bank account — you may owe that state's inheritance or estate tax, even if you live in Michigan. The state where the property is located, not where you live, determines whether a state tax applies.

For example, if you inherit a house in Pennsylvania, you would owe Pennsylvania's inheritance tax. If you inherit a bank account in New Jersey, you would owe New Jersey's inheritance tax. Michigan residency does not shield you from another state's tax on property located there. You would need to research the rules of the state where the property is held.

How to handle an inheritance in Michigan

When someone dies, their estate typically goes through probate — a court process where the will is validated, debts are paid, and assets are distributed to heirs. The person handling the estate (called an executor or personal representative) manages this process. Since Michigan has no inheritance or estate tax, the executor does not need to file a state tax return for the estate itself.

The executor may still need to file a final federal income tax return for the person who died and a federal estate tax return if the estate exceeds the federal threshold. A probate attorney or tax professional can advise on what filings are required. Many small estates can skip probate entirely if they fall below Michigan's threshold, which simplifies the process further.

Frequently Asked Questions

Do I owe Michigan tax on money I inherited?

No. Michigan has no inheritance tax or estate tax. You receive the full amount of any inheritance without a state tax deduction. If the inherited money earns interest or income after you receive it, that earnings are taxable, but the inheritance itself is not.

What if the estate is very large?

Michigan does not tax large estates. However, if the estate exceeds the federal threshold (currently $13.61 million in 2024), the executor must file a federal estate tax return and pay federal tax on the amount above the limit. Michigan adds no state tax on top of this.

Do I have to report an inheritance on my Michigan tax return?

No. Inheritances are not reported as income on your Michigan tax return. However, if the inherited account or property earns income after you receive it — such as interest, dividends, or rent — that income must be reported and is taxable in Michigan.

What if I inherited property in another state?

You may owe that state's inheritance or estate tax, depending on where the property is located. The state where the property sits, not where you live, determines whether a state tax applies. Research the rules of the state where the property is held.

Do I need a lawyer to handle an inheritance in Michigan?

It depends on the estate's size and complexity. Small estates may not require probate at all. Larger estates or those with disputes often benefit from a probate attorney. A tax professional can advise on any federal filings needed. Many people consult both to may support nothing is missed.