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How much money can you inherit without paying taxes on it?
In this article, you’ll learn about:
Let’s dig in.
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In the U.S., you can inherit up to $11.7 million without paying federal estate taxes.
State-level estate or inheritance taxes may apply, with varying rules and exemption limits.
Other taxes, like capital gains or income tax, could also affect inherited assets.
No, if you are inheriting less than $11.7 million, you do not have to pay federal taxes on inheritance.
But you might still have to pay state-level estate or inheritance taxes.
It depends on your state.
See our table below to see the inheritance taxes by state.
Estate tax and inheritance tax differ in:
The estate tax applies to the entire value of a deceased person’s estate before distribution to heirs.
And the estate itself is responsible for paying the estate taxes.
Inheritance tax applies to the value of assets received by individual beneficiaries.
And each beneficiary is responsible for paying the inheritance taxes on their share.
Estate taxes are based on the total estate value.
While inheritance taxes depend on:
Inheritance tax is a levy imposed on the value of assets passed on to beneficiaries after someone’s death.
It can vary by jurisdiction and is separate from estate tax.
Some states in the U.S. have inheritance taxes, with different rates and exemption limits.
Beneficiaries, and not the estate, are typically responsible for paying inheritance tax.
The federal inheritance tax, also known as the federal estate tax, is a tax on estates exceeding a specific exemption limit.
The exemption limit is $11.7 million per individual.
This is how much inheritance is tax-free.
Estates above this amount are taxed at a progressive rate.
They are starting at 18% and reach up to 40% for the highest-value estates.
Keep in mind that tax laws and exemption limits may change over time.
So consult a tax professional for the latest information.
The federal estate tax brackets are as follows:
Keep in mind that these brackets apply to the taxable estate.
This is the value of the estate after accounting for:
| State | Close Relatives | Distant Relatives | Unrelated Beneficiaries |
|---|---|---|---|
| Iowa | 0%-5% | 5%-10% | 10%-15% |
| Kentucky | 0% | 4%-8% | 12%-16% |
| Maryland | 0% | 10% | 10% |
| Nebraska | 1% | 13% | 18% |
| New Jersey | 0% | 11%-16% | 15%-16% |
| Pennsylvania | 0%-4.5% | 12% | 15% |
States with inheritance taxes base their rates on the relationship between the deceased and the beneficiary.
This approach aims to give closer relatives a lower tax burden compared to distant relatives or unrelated beneficiaries.
Each state has its own method for:
Typically, closer relatives like spouses, children, or grandchildren:
For instance, spouses often don’t pay any inheritance tax in many states.
More distant relatives such as cousins, nieces, or nephews generally face higher inheritance tax rates.
Unrelated beneficiaries (friends or non-family members) pay the highest rates.
Read More: How Much Money Can You Inherit Without Paying Taxes On It?
The states that have inheritance taxes are:
Estate tax is a tax on the transfer of a deceased person’s assets to their heirs or beneficiaries.
The tax applies to the total value of the estate, including:
In the U.S., the federal estate tax has an exemption limit.
This means estates valued below that amount are not subject to the tax.
The exemption limit is $11.7 million per individual.
Estates exceeding the exemption limit are taxed at progressive rates, ranging from 18% to 40%.
Some states also impose their own estate taxes with different exemption limits and tax rates.
| State | Exemption Amount | Tax Rates |
|---|---|---|
| Connecticut | $7.1 million | 10%-12% |
| District of Columbia | $4 million | 12%-16% |
| Hawaii | $5.49 million | 10%-20% |
| Illinois | $4 million | 0.8%-16% |
| Maine | $5.8 million | 8%-12% |
| Maryland | $5 million | 0.8%-16% |
| Massachusetts | $1 million | 0.8%-16% |
| Minnesota | $3 million | 13%-16% |
| New York | $5.93 million | 3.06%-16% |
| Oregon | $1 million | 10%-16% |
| Rhode Island | $1.579 million | 0.8%-16% |
| Vermont | $5 million | 16% |
| Washington | $2.193 million | 10%-20% |
To avoid paying taxes on the money you inherit, consider using estate planning, trusts, and wills in the following ways:
These are the questions our clients ask about how much money you can inherit without paying taxes on it.
The value an estate must reach to go through probate varies by state.
This is because each jurisdiction has its own rules and thresholds.
In some states, smaller estates may:
Check out how much an estate has to be worth to go to probate here.
The amount you can inherit from your parents without paying taxes depends on the type of tax involved.
For federal estate tax, an individual can inherit up to $11.7 million without paying taxes.
This exemption is even higher for married couples using portability.
However, the federal estate tax is levied on the estate, not the beneficiary.
If you’re considering inheritance taxes, only six states impose them.
The rates and exemptions vary by state.
And are based on the relationship between the deceased and the beneficiary.
Beneficiaries generally do not have to pay federal income taxes on inheritances.
However, they might be subject to state inheritance taxes.
Let’s say the inherited assets generate income, such as interest, dividends, or rent.
The beneficiaries must report and pay income taxes on that income.
Sometimes the inheritance includes tax-deferred accounts like an IRA or 401(k).
Beneficiaries may owe income taxes when they withdraw funds from those accounts.
When you sell a deceased parent’s home, you may need to pay capital gains tax on the profit from the sale.
However, you generally benefit from a “step-up” in basis.
This means the cost basis of the property is adjusted to the fair market value at the time of your parent’s death.
And you only pay capital gains tax on the increase in value from the stepped-up basis to the sale price.
Let’s say you sell the property soon after inheriting it.
The capital gains tax may be minimal or nonexistent.
This is due to the limited increase in value during that short period.
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