When somebody near us passes away, sorting by the monetary facet can really feel overwhelming. The excellent news is most individuals don’t have to stress about inheritance tax — at the least not on the federal stage.

On this information, we’ll break down how the inheritance tax works within the U.S., so you realize what to anticipate. We’ll cowl who must pay it, the way it’s calculated, and the ins and outs of submitting inheritance tax returns. Plus, we’ll contact on real-life examples of taxes on inherited property to assist make clear issues.

At a look:

• Inheritance tax is levied on beneficiaries, not the property, and solely on the state stage.
• Solely 5 states impose an inheritance tax for tax yr 2025.
• Usually, shut family members are exempt from paying inheritance tax.
• Inheritance tax charges differ relying on the worth of the inheritance and the beneficiary’s relationship to the deceased.

What’s an inheritance tax?

The inheritance tax is a state tax levied on people who inherit cash or property from a deceased individual. There is no such thing as a federal inheritance tax, and solely a handful of states cost this type of tax as of 2025. The precise inheritance tax charges range based mostly on state legal guidelines.

Inheritance tax vs. hereditary tax and succession tax

The phrases “hereditary tax” and “succession tax” additionally typically pop up when discussing inheritance tax, particularly in authorized paperwork or older tax guides. Within the U.S., all three phrases typically discuss with the identical idea — a tax that applies while you obtain property from somebody who has handed away. So, for those who come throughout these phrases, simply know they’re interchangeable with inheritance tax on this context!

How does inheritance tax work?

The inheritance tax works by taxing the beneficiaries immediately based mostly on their share of the worth of the property they acquired from the one that handed away. However inheritance tax guidelines range loads on the state stage.

Right here’s what you must learn about figuring out for those who owe inheritance tax, which states impose this tax, who may be exempt, and the tax types it’s possible you’ll want for tax functions or monetary planning.

Figuring out for those who owe inheritance tax

Whether or not you might want to pay taxes in your inheritance will depend on a number of components, together with:

• The state the place the decedent lived or owned property.
• Your relationship to the deceased individual (shut family members like youngsters or spouses are sometimes exempt).
• The worth of the property you inherit, which might embody retirement accounts, annuities, actual property, and many others.

States with inheritance tax

Solely 5 states at the moment levy an inheritance tax for 2025:

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Observe: Iowa imposed inheritance taxes till tax yr 2024 however eradicated them beginning in tax yr 2025.

Inheritance tax guidelines by state

Some states have inheritance tax exemptions, whereas others don’t. Tax charges can range from 0% to 16% relying on the state. In Kentucky, Maryland, New Jersey, and Pennsylvania, the tax price may rely upon an inheritor’s proximity to the deceased individual (how carefully associated they’re to the one that handed away). For instance, these states would possibly supply decrease tax charges or increased exemption thresholds to quick relations like mother and father, youngsters, or grandchildren, whereas different family members like aunts, uncles, and cousins may need the next exemption or no exemption in any respect.

Widespread inheritance tax exemptions

Many states supply inheritance tax exemptions to scale back or eradicate the tax legal responsibility for sure beneficiaries. Widespread exemptions embody:

• Surviving spouses: Usually exempt in all states with inheritance tax.
• Youngsters and different shut family members: Usually obtain partial or full exemptions relying on the state.
• Life insurance coverage proceeds: Typically tax-free, apart from sure eventualities, like curiosity earned earlier than payout.
• Small enterprise or farm property: Some states enable particular exemptions for these property to help property planning.

Inheritance tax types

Every state has its personal tax guidelines, exemptions, inheritance tax charges, and inheritance tax return types, so it’s necessary to verify with the Division of Income within the related state or an property planning legal professional you probably have questions or want inheritance tax recommendation.

Usually, inheritance tax returns are due a number of months after the individual’s date of dying.

How is inheritance taxed?

Inheritance tax charges range based mostly on a number of components, together with the state, the worth of the property inherited, and the beneficiary’s relationship to the deceased individual. First, we have to decide the state’s exemption quantity, if relevant, after which have a look at the tax charges.

Methods to calculate inheritance tax:

1. Decide the taxable quantity: Subtract any exemptions or deductions allowed by the state from the worth of the property.
2. Apply the tax price: Most states use a tiered construction, with increased charges for bigger inheritances or nonresident beneficiaries.

How do inheritance tax charges evaluate throughout totally different states?

Listed below are the present inheritance tax ranges by state as of 2025. Click on the hyperlink within the first column beneath for extra details about every state and the way they classify beneficiaries: