Estate administration guide
Do you owe estate or inheritance tax?
Most estates owe no federal estate tax, and there is no federal inheritance tax — but some states tax estates or inheritances. How the rules work.
Estate tax and inheritance tax are two different things
People use “death tax” loosely, but two distinct taxes hide inside it, and confusing them causes most of the worry. An estate tax is paid by the estate itself, out of its assets, based on the value of the estate, before anything is distributed. An inheritance tax is paid by the person who receives an inheritance, based on what they personally received and often on how closely related they were to the deceased.
The distinction matters because they live at different levels of government and hit different people. The federal government has an estate tax but no inheritance tax; a small number of states have one, the other, or in one case both. Knowing which tax you are actually asking about is the first step to an answer.
Most estates owe no federal estate tax
There is a federal estate tax, but for U.S. citizens and residents it generally reaches only estates whose value — the taxable estate plus certain lifetime gifts, after allowable deductions — exceeds a very high threshold, an amount in the tens of millions of dollars per person. The large majority of estates fall far below it and owe nothing federally, and separate rules apply to noncitizens who were not U.S. residents. Because that threshold is adjusted for inflation every year and was changed by federal law in 2025, do not rely on a specific number here: check the current figure on the IRS estate-tax page before concluding anything about a large estate.
Two features spare most married couples in particular. Transfers to a surviving U.S.-citizen spouse are generally free of estate tax under the unlimited marital deduction, and a surviving spouse can carry over the deceased spouse’s unused exemption through an election called “portability,” which generally requires filing a complete federal estate-tax return (Form 706) even when no tax is due — though the IRS allows limited relief in some cases where the ordinary deadline was missed. And to be clear about the other half: there is no federal inheritance tax at all. If someone tells you the IRS will tax your inheritance, they are describing income tax — on what the assets later earn, or on certain pre-death income the deceased never paid tax on — not a federal tax on the inheritance itself.
Some states tax the estate
About a dozen states plus the District of Columbia impose their own estate tax, and their exemptions are generally far lower than the federal one — low enough that an estate owing nothing federally can still owe state estate tax. The states that have one change from time to time, and each sets its own threshold and rates, so this is a question to check for the specific state that governs the estate.
Which state governs is usually where the person was domiciled at death, though real estate located in another state can pull that state’s estate tax in as well. If the estate is sizable or spread across states, the possibility of a state estate tax is worth confirming with the state or local authority that administers the tax, or a tax professional, rather than assuming the high federal exemption settles it.
A few states tax the inheritance
Separately, a small number of states — currently Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — impose an inheritance tax on the people who receive property, rather than on the estate. Iowa imposes no inheritance tax for deaths on or after January 1, 2025, though earlier deaths remain under the prior rules, and Maryland is the one state that has both an estate tax and an inheritance tax.
The good news for most families is that these taxes almost always treat close relatives gently: a surviving spouse is typically exempt, and children and parents are often exempt or taxed at low rates, while more distant relatives and unrelated heirs pay more. Rates and exemptions differ by state and by relationship, and some are being phased down over time, so anyone inheriting from someone who was domiciled in one of these states — or receiving property located there — should check that state’s current rules for their specific relationship to the deceased; the beneficiary’s own state of residence generally does not control.
Is an inheritance taxable income?
Generally, no — receiving an inheritance is not itself taxable income on your federal return. Beyond that, inherited property usually gets a “step-up in basis”: for figuring capital gains later, your cost basis is generally the asset’s value on the date of death rather than what the deceased originally paid. That can sharply reduce or eliminate the tax on selling an inherited house or investment shortly after inheriting them.
Two things are still taxable, though. Income the inherited assets generate after you own them — rent, dividends, interest — is your taxable income like any other. And certain assets do not get the step-up and are taxable when received, because the deceased never paid income tax on them; these are called “income in respect of a decedent,” and a common example is a retirement account.
Inherited retirement accounts are the big exception
A traditional IRA or pre-tax 401(k) was built with money that was never taxed, so inheriting one does not wash that tax away: the taxable portion of the distributions a beneficiary takes is generally taxed as ordinary income, and these accounts do not receive the step-up in basis that other assets do. Roth accounts and any after-tax amounts are treated differently — qualified Roth withdrawals and the return of after-tax contributions are generally tax-free — but for ordinary pre-tax retirement money, this is a common place families are surprised by a tax bill after a death.
How fast the account must be emptied depends on who inherits it. Under the SECURE Act, most non-spouse beneficiaries must withdraw the entire account within ten years of the owner’s death, while certain “eligible” beneficiaries — a surviving spouse, a minor child of the owner, someone disabled or chronically ill, or a beneficiary not much younger than the owner — have more flexibility, and a spouse has the most options of all. The detailed rules have shifted with recent legislation and IRS regulations, so a beneficiary of a large retirement account should map out the withdrawals with a tax professional to avoid both a surprise bracket and a penalty.
The estate may owe its own income tax
One more tax is easy to miss and easy to confuse with the others: an estate is its own taxpayer while it is being administered. If the estate earns more than a small amount of income during administration — interest, dividends, rent on estate property — the personal representative generally has to file an income-tax return for the estate, which is a different form from either the estate-tax return or the deceased person’s own final return.
It helps to keep three separate returns straight: the deceased person’s final individual income-tax return for their last year of life; the estate’s own income-tax return for income earned after death during administration; and, less often, a federal estate-tax return — filed when the estate is large enough to meet the filing threshold or owe tax, or when the estate files to elect portability for a surviving spouse. Most estates never file that third one. Confusing them — or forgetting the estate’s own return — is a common and avoidable mistake.
What this cannot tell you, and where to confirm it
This is general guidance, not tax or legal advice, and tax is the area of estate work where the numbers move the most. The federal exemption is adjusted every year and was changed by law in 2025; state estate and inheritance taxes are added, repealed, and phased down by state legislatures; and the retirement-account rules have been repeatedly revised. Any specific figure you need should come from the IRS or the state or local authority that administers the applicable tax, as of the year that applies, not from a number memorized here.
Use this to understand which taxes could be in play — federal estate tax for only the largest estates, a possible state estate or inheritance tax, income tax on retirement accounts and on what inherited assets earn — then get the current figures and your specific situation confirmed. Open the state comparison to reach your jurisdiction’s resources, and take any real tax exposure to a CPA or tax attorney, because a well-timed election or withdrawal plan can be worth far more than the fee.
This is general information, not legal, tax, or financial advice, and it does not create an attorney-client relationship. Probate law varies by state and county and changes over time. Verify the current rule with the court or a licensed attorney in the relevant state.