Texas does not have an inheritance tax
Texas has no state inheritance tax. When someone dies and leaves money or property to you, the state of Texas does not charge you a tax on that inheritance. This is one of the reasons Texas is sometimes called a tax-friendly state for heirs.
However, the absence of a Texas inheritance tax does not mean the money is completely untouched by taxes. The federal government may still impose an estate tax on very large estates, and inherited assets may have tax consequences when you sell them or receive income from them. Understanding the difference between these taxes matters because they work differently and affect different people.
Key Takeaways
- Texas does not charge an inheritance tax on money or property you receive from someone's estate.
- The federal government may charge an estate tax on estates larger than a certain threshold, which changes yearly.
- Inherited property may have capital gains tax consequences when you sell it, depending on how much it has increased in value.
- Income from inherited assets—such as rental income or dividends—is taxable to you as the recipient, even though the inheritance itself is not.
The difference between inheritance tax and estate tax
An inheritance tax is paid by the person who receives the money or property. An estate tax is paid by the estate itself before the money is distributed to heirs. Texas has neither. However, six states do have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you inherit from someone who lived in one of those states, you may owe that state an inheritance tax even if you live in Texas.
The federal estate tax is different again. It applies to estates worth more than a certain amount—currently $13.61 million for deaths in 2024, though this threshold changes yearly and is scheduled to drop significantly in 2026. If the estate is smaller than that threshold, no federal estate tax is owed. The executor of the estate (the person managing it) handles federal estate tax, not the individual heirs.
When you might owe federal estate tax
If someone leaves you an inheritance from a very large estate, the estate itself may owe federal tax before your share is distributed to you. The executor will file a federal estate tax return (Form 706) if the estate exceeds the threshold. The tax is paid from the estate's assets, which means your inheritance could be smaller than originally intended.
Most Texas estates do not reach the federal threshold. The threshold is high enough that it affects only the wealthiest estates. If you are unsure whether an estate you are involved with will owe federal tax, the executor or the estate's attorney can tell you based on the total value of the assets.
Capital gains tax when you sell inherited property
When you inherit property—a house, land, stocks, or a business—you do not owe tax on the inheritance itself in Texas. However, if you later sell that property, you may owe federal capital gains tax on the profit. The tax is based on how much the property increased in value between the time you inherited it and the time you sold it.
Inherited property receives what is called a "stepped-up basis," which is a significant advantage. This means the value of the property is reset to its fair market value on the date of death. If you inherited a house worth $300,000 on the date of death and sold it a year later for $310,000, you would owe capital gains tax only on the $10,000 gain, not on the full $310,000. This stepped-up basis applies to most inherited assets and can substantially reduce or eliminate capital gains tax.
Income from inherited assets is taxable to you
If you inherit an asset that produces income—rental property, dividend-paying stocks, a business, or a bank account with interest—you owe federal income tax on that income. The inheritance itself is not taxed, but the money it generates is. You report this income on your federal tax return each year.
For example, if you inherit a rental property and collect rent, that rent is taxable income to you. If you inherit stocks and receive dividends, those dividends are taxable. If you inherit a savings account and it earns interest, that interest is taxable. Texas does not tax this income either, but the federal government does.
What documents you may need to keep
When you inherit property, keep the death certificate and any documents showing the property's value on the date of death. These establish the stepped-up basis and are important if you later sell the property and need to calculate capital gains. The executor of the estate should provide you with a statement showing what you inherited and its value at that time.
If you inherit a retirement account such as an IRA or 401(k), the rules are more complex and depend on your relationship to the person who died. The financial institution holding the account will send you instructions on how to handle it. In some cases, you must take distributions within a certain time frame, and those distributions are taxable income.
When to talk to a tax professional
If you inherit a large estate, property, a business, or retirement accounts, it is worth consulting a tax professional or attorney. They can explain the specific tax consequences of your inheritance and help you understand what documents to keep and what you may owe. This is especially important if the estate is complex or if you inherit from someone who lived in a state with an inheritance tax.
For straightforward inheritances—money left to you in a will from a modest estate—you typically do not need professional help. But if you are unsure, a brief consultation with a CPA or tax attorney can save you from mistakes later.
Frequently Asked Questions
If I inherit money from someone in Texas, do I owe any tax on it?
No. Texas has no inheritance tax or estate tax. The money you inherit is not subject to Texas state tax. You may owe federal estate tax if the estate is very large, but that is paid by the estate before distribution, not by you as the heir.
What if the person who died lived in another state?
If they lived in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you may owe that state an inheritance tax on what you inherit, even though you live in Texas. The amount and rules vary by state. Check with the state where the person lived or ask the executor.
Do I owe tax when I sell inherited property?
You may owe federal capital gains tax on the profit when you sell, but the stepped-up basis usually reduces or eliminates this. The tax is only on the increase in value after you inherited it, not on the full sale price. Texas does not charge a capital gains tax.
Is income from inherited property taxable?
Yes. If inherited property produces income—rent, dividends, interest—that income is taxable to you as the recipient. Texas does not tax it, but the federal government does. You report it on your federal tax return each year.
What happens if I inherit a retirement account like an IRA?
The rules depend on your relationship to the person who died and the type of account. The financial institution will send you instructions. In most cases, you must take distributions, and those distributions are taxable income to you. A tax professional can explain your specific situation.