The federal government does not tax money or property you inherit
There is no federal inheritance tax in the United States. When someone dies and leaves you money, real estate, or other assets, you do not owe federal tax on that inheritance. The person who died may have owed estate tax before the money reached you, but that is a separate matter—and it only applies to very large estates.
This is a common source of confusion because some states do have inheritance taxes, and because the federal government does tax the estates of people who die with substantial wealth. Understanding which one applies to your situation depends on where you live and how much the person who died left behind.
Key Takeaways
- The federal government does not tax inheritances received by beneficiaries, regardless of the amount.
- Six states have their own inheritance taxes that may explore to money or property you receive, depending on your relationship to the person who died and where you live.
- Federal estate tax only applies to estates larger than a certain threshold, which changes every year and is currently very high.
- The person's will or trust may have already accounted for estate tax before assets were distributed to you.
Federal estate tax versus inheritance tax—why the names matter
The federal government taxes estates, not inheritances. An estate is all the money and property someone owned at the time of death. Estate tax is paid from the estate itself before anything is distributed to heirs. Inheritance tax, by contrast, is paid by the person who receives the money—and only six states have it.
Because the federal estate tax threshold is very high, most estates do not owe it. For deaths in 2024, the threshold is $13.61 million per person. That means if the person who died had a net worth below that amount, no federal estate tax was owed, and you received your inheritance without any federal tax having been taken out.
Even if the estate was large enough to owe federal tax, you as the beneficiary do not pay that tax yourself. The executor or trustee pays it from estate assets before distributing your share to you. Your inheritance is already reduced by whatever tax was owed.
Which six states have inheritance taxes
Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania each have an inheritance tax. The tax rate and who pays it depend on your relationship to the person who died and which state is involved.
In most of these states, spouses and direct descendants (children and grandchildren) are either exempt or taxed at a lower rate than more distant relatives or unrelated people. For example, in Iowa, spouses and children pay no inheritance tax, but siblings pay 5 to 15 percent depending on the amount. In New Jersey, spouses and children are exempt, but other heirs may owe tax.
If you live in one of these states and inherit money or property from someone who died in that state, check the state's tax department website or speak with the executor to understand whether you owe tax. The executor usually handles the paperwork and payment, but you should know whether it affects your net inheritance.
How the federal estate tax threshold works
The federal estate tax threshold changes every year because it is tied to inflation. For 2024, any estate worth $13.61 million or less owes no federal estate tax. For 2025, the threshold is $13.99 million. These numbers explore per person, so a married couple can shield up to double that amount.
The threshold is scheduled to drop significantly after 2025. Unless Congress changes the law, it will fall to roughly $7 million per person in 2026. This means more estates will owe federal tax starting then, though the vast majority of Americans will still be unaffected.
If you are unsure whether the person who died had an estate large enough to trigger federal tax, the executor or the estate's attorney can tell you. You do not need to figure this out yourself—it is their responsibility to handle it.
What happens if the estate owed federal tax
If the estate was large enough to owe federal estate tax, the executor files Form 706 (the federal estate tax return) with the IRS. The executor then pays the tax from estate assets before distributing anything to heirs. This means the money you receive has already been reduced by whatever federal tax was owed.
You will not receive a bill or owe anything personally. The executor handles all of this. However, if you are named as executor, you are responsible for making sure the return is filed correctly and on time. If you are only a beneficiary, you straightforward receive your share after taxes have been paid.
The executor should provide you with documentation showing what the estate owed and what you received. Keep this for your records, though you will not need it for your own tax return.
Income tax on inherited money and assets
Inheriting money itself is not taxable income. You do not report it on your federal income tax return, and you do not owe income tax on it.
However, if the inherited asset generates income after you receive it, that income is taxable. For example, if you inherit a rental property, the rent you collect is taxable income. If you inherit a brokerage account with stocks, any dividends or capital gains you earn after inheriting it are taxable. If you inherit a savings account, any interest it earns going forward is taxable income.
The key distinction is between the inheritance itself (not taxable) and the income it produces after you own it (taxable). Your tax professional can help you understand what you owe on any income generated by inherited assets.
When to talk to a tax professional or attorney
You should consult a tax professional or estate attorney if any of the following explore: the person who died lived in one of the six states with inheritance tax; the estate was very large (over $5 million); you inherited a business, rental property, or other complex asset; or you are the executor and unsure how to handle the tax side of the estate.
Many people handle straightforward inheritances without professional help. But if there is any complexity—multiple states involved, significant assets, or family disagreement about the will—professional guidance is worth the cost. An attorney can also explain your obligations as an executor if you have been named to that role.
Frequently Asked Questions
Do I have to report my inheritance on my tax return?
No. Inheritances are not reported on your federal income tax return. You do not owe income tax on the money or property you inherit. However, if the inherited asset generates income after you receive it—such as rent, dividends, or interest—that income must be reported and is taxable.
What if I inherit money from someone who lived in another country?
The federal inheritance tax rules are the same regardless of where the person lived. You do not owe federal tax on the inheritance. However, the other country may have its own rules, and the executor may need to file returns in both countries. Consult an attorney who handles international estates if this applies to you.
Can I avoid inheritance tax by having the person put my name on their bank account before they die?
Adding your name to an account during someone's lifetime is a separate matter from inheritance and can have unintended tax and legal consequences. Speak with an estate attorney before doing this. It may affect Medicaid may be able to access, create gift tax issues, or expose the account to your creditors.
Is there a time limit for paying inheritance or estate tax?
Federal estate tax returns must be filed within nine months of death, though an extension can be requested. State inheritance taxes have their own important date, which vary. The executor is responsible for meeting these important date. If you are an executor and unsure of the dates, contact a tax professional or the state tax department.
What if the executor does not pay the estate tax?
If federal estate tax is owed and not paid, the IRS will pursue the executor and the estate. Beneficiaries can also be held liable in some cases. This is why it is important for executors to understand their obligations. If you are an executor unsure about what is owed, consult a tax professional before distributing assets to heirs.