Inheritance tax is imposed on the transfer of assets when a beneficiary receives an inheritance. The amount owed, if any, depends on factors like the value of the assets inherited and the relationship between the deceased person and the heir.
The United States doesn't have a federal inheritance tax. However, depending on where you live, your estate or beneficiaries may have to pay a state gift tax, estate tax, inheritance tax, or a combination of these.
An inheritance tax is a tax paid by the heirs of a deceased person on the assets they receive from the estate. There are currently 5 states that impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
An estate tax is paid by an individual's estate based on the net value of the estate. The estate consists of all the assets the deceased person owned at the time of their death. Washington D.C. and the following states impose state estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. If you live in a location that imposes state estate taxes, contact a tax professional for more information.
State estate and inheritance taxes may be deductible on the beneficiary's federal estate tax return. Taxes can significantly affect how much passes from your estate to your heirs, so be sure to work with a professional when preparing your estate plan.
While there's no federal inheritance tax, there's a federal estate tax. Here are the general steps for how to calculate the federal estate tax:
1. Determine the gross value of the estate.
2. Subtract any deductions.
3. Subtract the applicable exclusion amount.
4. Apply the estate tax rates to the remaining balance.
Note that the estate pays estate taxes before assets are distributed to the heirs, and there’s a high threshold before an estate owes federal estate taxes, so many estates aren’t required to pay them. Because tax laws are complicated, it's best to work with a professional when calculating the taxes owed on an estate.
Currently, 5 states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The charts below show the rates and information about inheritance tax thresholds—also known as exemptions or allowances—which vary by state, and other rules that may apply.
Kentucky
Inheritance tax rate: 4% to 16%
Who's exempt: Surviving spouse, parents, children, grandchildren, siblings, and half-siblings
Thresholds & other rules: Kentucky designates 3 classes of beneficiaries, with some classes exempt from inheritance tax while others are subject to rates up to 16%.1
Maryland
Inheritance tax rate: 10%
Who's exempt: Surviving spouse, parents, stepparents, grandparents, children, stepchildren, and siblings
Thresholds & other rules: Maryland levies an inheritance tax on the net value of assets transferred from a deceased person to designated beneficiaries. This tax applies to property inherited through a will, intestate succession laws, trusts, deeds, joint ownership, or other means. The Register of Wills in the county where the decedent resided or owned property is responsible for collecting the inheritance tax.2
Nebraska
Inheritance tax rate: 1% to 15%
Who's exempt: Surviving spouse and certain descendants under the age of 22.
Thresholds & other rules: Nebraska taxes heirs at 15% on any value over $25,000 if they're not a relative of the deceased. Relatives are subject to different amounts based on their relationship to the deceased. This is included in Nebraska Statute LB310 (PDF).
New Jersey
Inheritance tax rate: 11% to 16%
Who's exempt: Surviving spouse, civil union partner, domestic partner, parents, grandparents, children, stepchildren, grandchildren, and great-grandchildren.
Thresholds & other rules: New Jersey designates 4 classes of beneficiaries, with some classes exempt from inheritance tax while others are subject to rates up to 16%.3
Pennsylvania
Inheritance tax rate: 4.5% to 15%
Who's exempt: Surviving spouse and children younger than 21.
Thresholds & other rules: Pennsylvania's inheritance tax rates vary from 0% to 15% based on the recipient's relationship to the deceased. Spouses are exempt, while the tax rate is 4.5% on property received by direct descendants and lineal heirs, 12% on transfers to a sibling, and 15% on transfers to other heirs such as a friend or cousin.4
The amount of inheritance tax owed is calculated based on the value of the assets being inherited and the relationship between the deceased person and their heirs, as shown in the chart above.
It's best to consult with a tax professional or estate planning attorney to understand the specific tax implications and to ensure that the estate is managed efficiently. It's also a good idea to discuss your wealth transfer plans with your heirs, so they know what to expect when you pass away.
Understanding the basics of estate planning (PDF) can help you reduce inheritance taxes for your heirs. As a benefactor, you might consider making gifts to your heirs or to a charity, or setting up an irrevocable trust.
Trusts can be used to transfer assets to heirs in a way that minimizes the inheritance tax liability. However, you should be aware of federal gift tax consequences and, in Connecticut, a state lifetime gift tax that may be imposed on certain gifts.5
Working with a professional and creating an estate plan today can help you find which strategies to lower your taxable estate will work best for you and your heirs.
One way to avoid inheritance tax is to reduce the value of your estate by applying the strategy of lifetime gifting. This helps you transfer wealth to your beneficiaries now rather than including the assets in your taxable estate.
The IRS allows you to give away a certain amount each year without incurring gift tax. As of 2025, the annual gift tax exclusion is $19,000. This means that you can give up to $19,000 to as many people as you want each year without incurring gift tax. Married couples can double this amount to $38,000 per recipient.
Additionally, there's a federal lifetime gift tax exemption. As of 2025, the lifetime estate and gift tax exemption is $13.99 million per individual. That means a person can give away up to $13.99 million over their lifetime without incurring gift tax.6
Creating an irrevocable trust is another way to reduce estate taxes that can help you give to your beneficiaries in a structured way. Once you transfer assets to the trust, they're no longer considered part of your estate, which can help reduce the value of the inheritance, potentially lowering or eliminating inheritance tax liability.
However, it's important to note that once you transfer assets to the trust, you'll no longer have direct control over them. Be sure to consult with an estate planner or financial advisor to determine if creating a gift in trust is right for you and your heirs.
One estate planning strategy is to combine lifetime gifting and trusts to help maximize tax benefits and protect your assets. You can use the annual gift tax exclusion to fund an irrevocable trust without incurring gift tax. So since the exclusion amount for 2025 is $19,000, you could gift up to $19,000 into an irrevocable trust.
You can also use your lifetime gift tax exemption to fund an irrevocable trust. The 2025 lifetime estate and gift tax exemption is $13.99 million per individual. So, if you transferred $5 million to an irrevocable trust, you'd reduce your estate value by $5 million and still have a remaining exemption of $8.99 million.
If you live in a state with inheritance tax, you may have to pay it based on your relationship to the decedent. You also may be subject to capital gains tax if you sell the assets at a profit.
When you inherit a brokerage account, the cost basis of the assets is usually "stepped up" to the fair market value on the date of the deceased's death. If the account's value grows before you sell the assets, you'll be taxed on the capital gains.
For example, if the deceased purchased the stock at $20,000 but it was worth $50,000 on the date of their death, your inherited basis would be $50,000. If you sell it when it's worth $80,000, your capital gain would be $30,000.
Original purchase price:
$20,000
Date-of-death value:
$50,000
Inherited basis:
$50,000
Sale price:
$80,000
Capital gain:
$80,000 – $50,000 =
$30,000
The amount of capital gains tax you pay depends on your tax bracket and how long you hold the inherited assets before selling them. Generally, holding on to an asset for more than a year before selling it can lessen your tax burden as you'll be subject to the long-term capital gains tax rate, rather than the short-term capital gains tax rate.
Make sure your heirs know what to expect.
Learn how to discuss your wealth transfer plans.
Here are answers to some of the more frequently asked questions regarding inheritance taxes.
Maybe. When you receive an inheritance, you'll be subject to federal estate tax. You may be subject to a state inheritance tax if you live in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania.
An inheritance tax is a tax paid by the heirs of a deceased person on the assets they receive from the estate. An estate tax is a tax paid by an individual's estate based on the net value of the estate. An estate consists of all the assets the deceased person owned at the time of their death.
If you don't pay your inheritance taxes, the state may file a lien against your assets. This means that the state can seize your assets to pay the inheritance tax debt. The state may also charge you interest and penalties on the unpaid inheritance tax.
Yes, in most states you can get an extension to file your inheritance taxes, typically up to 6 months.
One of the challenges of planning for inheritance taxes is that the laws are constantly changing. It's important to stay up to date on the latest changes so you can adjust your plan accordingly.
Another challenge is that it can be difficult to predict the future value of your assets. If you underestimate the value of your assets, your heirs may end up owing more in inheritance taxes.
Some beneficiaries of an estate pay inheritance tax based on the value of the assets they inherit. The tax rates and exemptions vary by state and relationship to the deceased.
You can potentially owe capital gains tax on inherited property, but different rules apply.
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1Source: Inheritance & Estate Tax. Kentucky Department of Revenue.
2Source: Estate and Inheritance Tax Information. Comptroller of Maryland.
3Source: General Information: Inheritance and Estate Tax. Inheritance and Estate Tax Branch, New Jersey Division of Taxation.
4Source: Inheritance Tax. Pennsylvania Department of Revenue.
5Source: Estate, Inheritance, and Gift Taxes in CT and Other States. Connecticut General Assembly, September 2, 2020.
6Note that under current law, this expanded exemption is set to expire at the end of 2025. If Congress doesn't act, the limit could change to be roughly half this amount in 2026.
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