Property and inheritance taxes are extremely burdensome. They disincentivize in-state funding and might drive high-net-worth people out of state. In addition they yield property planning and tax avoidance methods which might be inefficient, not just for affected taxpayers but additionally for the economic system at massive. The handful of states that also impose them ought to take into account progressively eliminating them or at the very least conforming to federal exemption ranges.

Below the Tax Cuts and Jobs Act (TCJA) of 2017, the federal property tax exemption was quickly raised from $5.49 million to $11.18 million per particular person, with annual inflationInflation is when the final worth of products and providers will increase throughout the economic system, decreasing the buying energy of a forex and the worth of sure property. The identical paycheck covers much less items, providers, and payments. It is usually known as a “hidden tax,” because it leaves taxpayers much less well-off attributable to larger prices and “bracket creep,” whereas growing the federal government’s spendin changes. (In tax 12 months 2025, the federal exemption is $13.99 million.) This coverage change was set to run out after 2025, which might have triggered the exemption’s worth to fall by about half, however the One Massive Lovely Invoice Act (OBBBA) elevated the brink to $15 million beginning in 2026, with that threshold listed for inflation.

As of tax 12 months 2025, Connecticut is the one state that conforms its property tax exemption to the federal threshold. New York has the second highest exemption, excluding $7.16 million from its particularly high-rate property tax. On the different finish of the spectrum, Oregon and Rhode Island have the least beneficiant exemptions, at solely $1 million and $1,802,431, respectively.

As a result of these taxes encourage rich people to maneuver out of state—depriving the state of tax income that may have been generated throughout their lifetimes—many states eradicated their property taxes following federal legislation adjustments within the 2000s, and a few are participating in present legislative discussions about reforms to their property and/or inheritance taxes. Throughout their 2025 legislative periods, policymakers in Nebraska and Oregon thought of structurally sound adjustments to their inheritance and property taxes, respectively, however no such reforms had been finally adopted. In Maryland, Gov. Wes Moore (D) proposed eliminating the inheritance tax and offsetting the income loss by decreasing the property tax exemption from $5 million to $2 million, however this proposal was not adopted.

Previous to 2005, the federal authorities incentivized states to evaluate state-level property taxes by providing a federal credit score in opposition to state property taxes. This made property taxes a beautiful choice for states since taxpayers paid the identical quantity in property taxes whether or not their state levied the tax or not. After the federal authorities absolutely phased out the state property tax credit score in 2005, some states stopped amassing property taxes by default, as their provisions had been immediately linked with the federal credit score, whereas others responded by repealing their tax legislatively.

2025 Notable Modifications

• Iowa eradicated its inheritance tax efficient January 1, 2025.
• Washington elevated its property tax by elevating all however its lowest marginal property tax price, together with elevating the highest price from 20 to 35 %, whereas additionally growing the property tax exemption by $807,000, from $2.193 million in 2024 to $3 million in 2025. These adjustments took impact on July 1, 2025, and are the results of SB 5813, enacted in Could 2025.
• Connecticut’s exemption, which is tied to the federal exemption, was adjusted for inflation, bringing it from $13.61 million in 2024 to $13.99 million in 2025.
• Maine’s exemption, which is listed for inflation, elevated by $200,000, from $6.8 million in 2024 to $7 million in 2025.
• New York’s exemption elevated by $220,000, from $6.94 million in 2024 to $7.16 million in 2025, attributable to inflation.
• The District of Columbia’s inflation listed exemption elevated by $157,600, from $4,715,600 in 2024 to $4,873,200 in 2025.

Significantly after 2005, most states have been shifting away from property or inheritance taxes or have raised their exemption ranges, as these taxes harm states’ competitiveness and create incentives for expensive and economically inefficient tax avoidance. Delaware repealed its property tax in the beginning of 2018. New Jersey completed phasing out its property tax on the similar time and now solely imposes an inheritance tax. Vermont completed phasing in an property tax exemption improve in 2021, bringing the exemption to $5 million that 12 months, in comparison with $2.75 million in 2019. Connecticut phased in a rise to its exemption over six years, matching the federal property tax exemption in 2023 and concurrently transitioning to a flat taxAn revenue tax is known as a “flat tax” when all taxable revenue is topic to the identical tax price, no matter revenue stage or property. price. In three different states—Nebraska, Oregon, and Maryland—efforts to reform their property and/or inheritance taxes fell brief in 2025.

States that levy property and/or inheritance taxes impose punitive tax burdens on generational transfers of wealth, which might harm household farms and companies. Many enterprise homeowners are “asset wealthy however money poor,” so when property and inheritance taxes are levied on the worth of illiquid property, like actual property or the worth of the enterprise, recipients could also be pressured to promote a few of their inherited property to pay the tax invoice. The monetary and administrative burdens related to these taxes hamper financial development and entrepreneurial exercise, and taxpayers’ efforts to keep away from or reduce tax burdens result in deadweight loss and financial distortions.

Within the 16 states and the District of Columbia the place property and/or inheritance taxes are levied, policymakers ought to take into account methods to section out or get rid of these taxes to advertise the steadiness of household companies, reduce financial distortions, and stop authorities overreach throughout an already troublesome time for the family and friends of the deceased.