Do You Pay Taxes on an Inheritance?

It’s one of the most common worries after a parent or relative dies: will the IRS take a chunk of what I inherit? For most people the answer is no, with a few important exceptions. This guide separates what’s taxed from what isn’t.

Is an inheritance taxable income?

Generally not. Federal law (26 U.S. Code § 102) provides that gross income does not include the value of property acquired by gift, bequest, devise, or inheritance. FedLaws summarizes it this way: if you inherit cash, a house, stock, or other property, you do not report the value as income on your federal tax return. There is also no federal inheritance tax, as NerdWallet notes; the federal government has an estate tax, which is a different thing.

Who pays the federal estate tax?

The estate, not you. The IRS’s Form 706 instructions for 2026 say the basic exclusion amount is $15,000,000, so a federal estate tax return is required only for estates above that amount (or to elect portability for a surviving spouse), and the tax is paid by the estate before distribution. See estate tax vs. inheritance tax.

When might you owe tax on something you inherit?

Even when the inheritance itself isn’t taxed, what you do with it can be.

• Income the assets earn after you inherit them. If you inherit a rental property, stocks that pay dividends, or an interest-bearing account, the income they generate after the transfer is generally taxable to you. Louisiana’s income tax statute, for example, states the same principle plainly: the value of inherited property isn’t included in gross income, but the income from the property is
• Withdrawals from an inherited traditional IRA or 401(k). The Journal of Accountancy explains that income in respect of a decedent, including payments from tax-sheltered retirement plans, is taxable to the beneficiary when received. See inheriting an IRA or 401(k)
• Unpaid wages and similar items the person earned but hadn’t been paid. IRS Publication 559 covers these as income in respect of a decedent; see final paychecks, refunds, and other money owed
• Selling inherited property for more than your basis. The IRS says the gross proceeds from the sale are included in gross income when considering whether you must file, and that you have a taxable gain if the sale price exceeds your basis, which is generally the property’s fair market value at the date of death. If you sell for about what it was worth at death, there may be little or no gain. See step-up in basis

Do some states tax inheritances?

Yes. NerdWallet and Vanguard report that five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Some states also have an estate tax; Maryland is the only one with both, according to FedLaws.

• The heir pays it, typically out of what’s inherited
• It depends on the decedent’s state and property, not yours. FedLaws says the trigger is the deceased’s residency or the location of real estate, not the heir’s location
• Rates often depend on your relationship to the person who died. Vanguard reports, for example, that Pennsylvania’s rates range from 0 to 15 percent depending on the recipient’s relationship, and New Jersey has four beneficiary classes, some exempt and others taxed at rates up to 16 percent; closer relatives often pay less or nothing
• Many states have no such tax at all, including Texas

If the person who died lived in or owned property in one of these states, ask the executor or an attorney whether tax is due and who pays it. State revenue departments, such as Kentucky’s, Maryland’s, Nebraska’s, New Jersey’s, and Pennsylvania’s, publish guidance.

Do I have to report an inheritance to the IRS?

You generally don’t report the inheritance itself as income. But you may need to report related events, such as income from inherited assets, withdrawals from inherited retirement accounts, and sales of inherited property. If you inherit from a foreign person or a foreign account, additional reporting rules may apply, so ask a tax professional.

What should I ask the executor?

• What was the date-of-death value of each asset I’m receiving?
• Was a federal estate tax return filed? Will I receive a Schedule A (Form 8971)?
• Does the state where the person lived, or where they owned real estate, have an inheritance tax? Has it been paid, and by whom?
• Which assets, such as IRAs, will generate taxable income to me?
• When will distributions happen, and is the estate holding back money for taxes?

See which tax forms an executor may need.

When should I talk to a professional?

If you inherit real estate, a business, a retirement account, or a large sum; if you live in or inherit from a state with an inheritance tax; or if you plan to sell soon, an hour with a CPA or tax attorney can prevent costly errors.

This is general educational information, not tax or legal advice. Federal rules, state inheritance and estate taxes, and rates change and vary; the state information here comes from financial-education sources and should be confirmed with your state revenue department or a tax professional.