Do You Pay Tax on an Inheritance?
Figures verified November 9, 2026 against IRS Publication 525, Taxable and Nontaxable Income · Update log
Short answer
Usually not. An inheritance isn't income, so you don't pay federal income tax on it and don't report it on your return. There is no federal inheritance tax.
Only 5 states tax heirs: Pennsylvania, New Jersey, Kentucky, Maryland and Nebraska. It depends on the state where the person who died lived, not where you live, and spouses are always exempt. You do pay income tax on what the inheritance earns after the death, on inherited IRA withdrawals, and on any gain when you sell.
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Will you owe tax on your inheritance?
Pick the state where the person who died lived. Where you live doesn't matter.
Federal: an inheritance isn't income
Property you receive as a bequest or inheritance isn't included in your income (IRS Publication 525). That covers cash, a house, stocks and personal belongings. You don't list it on Form 1040 and you don't owe income tax when you receive it.
There is no federal inheritance tax. The federal estate tax is charged to the estate, and only when it is worth more than $15 million in 2026. Life insurance paid to you as a beneficiary is generally not income either.
What you do pay tax on
- Income after the death. Interest, dividends and rent that inherited property earns once it is yours are taxable to you. Income earned while the estate still holds it is reported on the estate's Form 1041, and passed to you on a Schedule K-1 if the estate distributes it.
- Inherited IRAs and 401(k)s. Withdrawals from a traditional account are taxed as ordinary income, as they would have been for the person who died. Qualified withdrawals from a Roth account generally aren't taxed.
- Selling inherited property. Your basis is the value on the date of death, so you pay capital gains tax only on the rise since then, always at long-term rates. Work it out with the inherited property capital gains calculator.
- Income the person had earned but not received. Final wages, bonuses, accrued interest and annuity payments keep their tax character when they are paid to you.
- Interest on life insurance proceeds paid in installments.
The 5 states with an inheritance tax
An inheritance tax is paid on each heir's share, at a rate set by the heir's relationship to the person who died. Close family pays little or nothing; nieces, nephews and friends pay the most.
| State | Rates | Deadline |
|---|---|---|
| Pennsylvania | 0% to 15% | Delinquent 9 months after death; 5% discount if paid within 3 months |
| New Jersey | 0% to 16% | 8 months after the date of death; 10% a year interest after that |
| Kentucky | 0% to 16% | For deaths on or after July 1, 2026: 24 months after the date of death, with a 5% discount if paid within 14 months. For earlier deaths: 18 months, and 9 months for the discount |
| Maryland | 10% | Probate assets: with the Administration Account. Non-probate assets: on the Register of Wills invoice (10% penalty after 30 days) |
| Nebraska | 1% to 15% | 12 months after the date of death; interest runs after that |
The tax depends on where the person who died lived. A state can also tax real estate and tangible property located there when the owner lived elsewhere. Rates by relationship and the out-of-state rules are in inheritance tax by state.
Estate tax: paid by the estate, not you
An estate tax is charged on the whole estate before anything is distributed. The executor files the return and pays it from the estate, so heirs never pay it from their own money; it only shrinks what is left to share. 12 states and DC have one, most with an exemption far below the federal $15 million. See estate tax by state and estate tax vs inheritance tax.
Inheritances from abroad
An inheritance from someone who wasn't a U.S. citizen or resident isn't taxed either, but if you receive more than $100,000 in a year from a nonresident alien or a foreign estate, you must report it on Form 3520. The penalties for a late or missing Form 3520 can be steep, so file it with your return.
Optional: get help filing
Get a flat-fee quote for the estate's tax returns
The final Form 1040, the estate's Form 1041 and any state return are the parts executors most often hand off. Leave your email and the rough estate size, and a CPA or Enrolled Agent who prepares estate returns will reply with a fixed price. Free, and no obligation.
Frequently asked questions
Do I have to pay taxes on an inheritance?
Not federal income tax: money and property you inherit aren't income. You may owe state inheritance tax if the person who died lived in Pennsylvania, New Jersey, Kentucky, Maryland and Nebraska, depending on your relationship to them. Spouses are exempt in all five, and children in every one except Pennsylvania and Nebraska.
Do I report an inheritance on my tax return?
No. You don't report the inheritance itself on Form 1040. You do report income it earns after the death, withdrawals from an inherited traditional IRA or 401(k), and the sale of inherited property. A large inheritance from someone abroad also has to be reported on Form 3520, though it isn't taxed.
Is life insurance paid to a beneficiary taxable?
Generally no. Life insurance proceeds paid because of the insured person's death aren't income. Interest paid on the proceeds, for example when the insurer holds the money and pays it in installments, is taxable.
Does the state where I live matter?
No. Inheritance tax depends on where the person who died lived, and on where any real estate or tangible property they owned is located. A New Jersey resident inheriting from a parent in Florida owes no inheritance tax.
Is inheriting a house taxable?
Not when you inherit it, except for state inheritance tax in the five states that have one. When you sell, you pay capital gains tax only on the rise in value since the date of death, because your basis is the value on that date.
How much can you inherit without paying taxes?
If the person who died lived in one of the 45 states without an inheritance tax, or DC, there is no limit and heirs owe no inheritance tax, unless they owned real estate in one of the five. The federal estate tax applies only to estates over $15 million in 2026, and the estate pays it. In the five inheritance tax states, the amount depends on the relationship; Pennsylvania taxes adult children at 4.5% from the first dollar.
Sources
This information is provided for educational purposes only and should not be considered legal or tax advice. Consult a qualified tax professional for guidance specific to your situation.