Tax Implications of Receiving an Inheritance
Inheriting money or property has important tax implications. Most inheritances aren't taxed the way you might think. Here's what to expect.
Tax Implications of Receiving an Inheritance
No Federal Inheritance Tax
The United States has no federal inheritance tax. You do NOT pay federal income tax on inherited money or property.
Estate Tax
The estate (the deceased's assets) may owe estate tax, but only if it exceeds the exemption ($13,990,000 in 2025). This is paid by the estate before distribution.
State Inheritance Taxes
Six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Illinois does NOT have an inheritance tax.
The Stepped-Up Basis
When you inherit appreciated property (stocks, real estate), your cost basis is "stepped up" to the fair market value at the date of death.
Example: Parent bought stock for $10,000; worth $100,000 at death. If you inherit it and immediately sell for $100,000, you owe NO capital gains tax.
Inherited IRAs
Inherited IRAs are taxable when withdrawn:
- Non-spouse beneficiaries must withdraw the full account within 10 years
- Withdrawals are taxed as ordinary income
- Strategic withdrawals can minimize taxes
Inherited Roth IRAs
Inherited Roth IRAs must also be distributed within 10 years, but withdrawals are tax-free.
Received an inheritance? Proper planning ensures you maximize the after-tax value.