Inheritance Tax Guide 2026: State-by-State Rules, Exemptions & Calculator
Complete inheritance tax guide for 2026. Learn the difference between estate tax and inheritance tax, state-by-state rules, federal exemptions, and how to calculate your inheritance tax liability.
Inheritance tax is one of the most misunderstood taxes in the United States. Many people confuse it with estate tax, assume they'll owe taxes on inherited money, or don't realize their state may have specific inheritance tax rules. This 2026 guide explains everything you need to know about inheritance tax, including the difference between estate and inheritance tax, state-by-state rules, federal exemptions, and how to calculate your potential tax liability.
Official Sources
The federal estate tax exemption is published by the IRS Estate Tax page. State inheritance tax rules are available at each state's Department of Revenue.
Inheritance Tax vs Estate Tax: What's the Difference?
Estate Tax
Estate tax is paid by the estate of the deceased person before assets are distributed to heirs. The federal estate tax applies to estates valued above the exemption amount. The executor of the estate files the tax return and pays the tax from estate assets.
Inheritance Tax
Inheritance tax is paid by the recipient (the heir) on the assets they receive. Not all states have an inheritance tax, and the tax rate often depends on your relationship to the deceased person.
Key Differences
| Feature | Estate Tax | Inheritance Tax |
|---|---|---|
| Who pays | The estate | The heir/recipient |
| When paid | Before distribution | After receiving inheritance |
| Federal tax | Yes (above exemption) | No federal inheritance tax |
| State tax | 12 states have estate tax | 6 states have inheritance tax |
Federal Estate Tax in 2026
Federal Estate Tax Exemption
For 2026, the federal estate tax exemption is $13,990,000 per individual (or $27,980,000 for married couples). This means:
- Estates valued under $13.99 million: No federal estate tax
- Estates valued over $13.99 million: 40% tax on the amount above the exemption
Example: An estate worth $15 million would pay 40% on $1,010,000 (the amount above $13.99M), resulting in $404,000 in federal estate tax.
Important: Exemption Sunset in 2026
The Tax Cuts and Jobs Act of 2017 doubled the estate tax exemption, but this doubled amount is scheduled to sunset on December 31, 2025. For 2026, the exemption may revert to approximately $7-8 million per individual (adjusted for inflation). However, legislation could extend the higher exemption.
Always check current law, as this is a politically contested issue that could change.
State Estate Tax (12 States)
These states have their own estate tax, separate from the federal estate tax:
| State | Exemption | Top Rate |
|---|---|---|
| Oregon | $1,000,000 | 16% |
| Massachusetts | $2,000,000 | 16% |
| New York | $6,940,000 | 16% |
| Washington | $2,193,000 | 20% |
| Illinois | $4,000,000 | 16% |
| Connecticut | $9,100,000 | 12% |
| Hawaii | $5,490,000 | 20% |
| Vermont | $5,000,000 | 16% |
| District of Columbia | $4,766,800 | 16% |
| Maine | $6,410,000 | 12% |
| Delaware | $5,930,000 | 16% |
| Rhode Island | $1,733,264 | 16% |
State Inheritance Tax (6 States)
Only six states have an inheritance tax, paid by the heir:
Iowa (Phasing Out)
Iowa is phasing out its inheritance tax. The tax was eliminated for deaths occurring on or after January 1, 2025.
Kentucky
Kentucky has an inheritance tax with exemptions based on relationship:
- Class A (spouse, parents, children): Fully exempt
- Class B (siblings, nieces/nephews): $1,000 exemption, 4-16% rate
- Class C (all others): $500 exemption, 6-16% rate
Maryland
Maryland has BOTH an estate tax AND an inheritance tax:
- Estate tax exemption: $5,000,000
- Inheritance tax: Spouses, children, parents exempt; others pay 10%
Nebraska
Nebraska has the highest inheritance tax rates in the country:
- Immediate relatives (spouse, parents, children): 1%
- Other relatives (siblings, nieces/nephews): 6-11%
- Non-relatives: 18%
New Jersey
New Jersey eliminated its estate tax in 2018 but still has an inheritance tax:
- Class A (spouse, children, parents): Fully exempt
- Class C (siblings, sons/daughters-in-law): $25,000 exemption, 11-16%
- Class D (all others): $500 exemption, 15-16%
- Class E (charities): Fully exempt
Pennsylvania
Pennsylvania's inheritance tax rates:
- Spouse: 0% (fully exempt)
- Children/parents: 4.5%
- Siblings: 12%
- All others: 15%
States with No Estate Tax and No Inheritance Tax
The majority of states have neither an estate tax nor an inheritance tax:
- Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, Wyoming
Best states for inheritance: Florida, Texas, Nevada, and Wyoming have no income tax, no estate tax, and no inheritance tax.
How to Calculate Inheritance Tax
Step 1: Determine if Federal Estate Tax Applies
Check if the total estate value exceeds the federal exemption ($13.99M in 2026, potentially lower if TCJA sunsets).
Step 2: Check State Estate Tax
If the deceased lived in one of the 12 estate tax states, check the state exemption and rate.
Step 3: Check State Inheritance Tax
If you (the heir) live in a state with inheritance tax, or if the deceased lived in one, determine your tax class and applicable rate.
Step 4: Calculate Your Tax
Multiply the taxable inheritance (after exemptions) by the applicable tax rate.
Example: You inherit $100,000 from your uncle in Pennsylvania. As a non-immediate relative, your rate is 15%. Your inheritance tax is $100,000 × 15% = $15,000. You receive $85,000.
Inheritance Tax Exemptions and Deductions
Relationship-Based Exemptions
Most states with inheritance tax exempt or reduce the tax for close family members:
- Spouses: Always exempt in every state
- Children: Usually exempt or lowest rate
- Parents: Usually exempt or lowest rate
- Siblings: Moderate rate (4.5-12%)
- Non-relatives: Highest rate (10-18%)
Charitable Deductions
Bequests to qualified charities are generally exempt from both estate and inheritance tax in all states.
Life Insurance
Life insurance proceeds are generally not subject to income tax for the beneficiary. However, they ARE included in the estate for federal estate tax purposes if the deceased owned the policy.
How to Minimize Inheritance Tax
1. Annual Gift Exclusion
In 2026, you can gift up to $18,000 per person per year without gift tax consequences. A married couple can give $36,000 per recipient. This reduces your estate over time.
2. Lifetime Gift Exemption
The lifetime gift exemption is the same as the estate tax exemption ($13.99M in 2026). Gifts above the annual exclusion reduce your lifetime exemption.
3. Irrevocable Trusts
Assets placed in an irrevocable trust are removed from your estate and may avoid estate tax. Common types include:
- Irrevocable Life Insurance Trust (ILIT)
- Generation-Skipping Trust
- Qualified Personal Residence Trust (QPRT)
4. Move to a Tax-Friendly State
If you're planning your estate, consider establishing residency in a state with no estate or inheritance tax (Florida, Texas, Nevada, etc.).
5. Charitable Bequests
Leaving assets to charity reduces your taxable estate while supporting causes you care about.
Frequently Asked Questions
Is there a federal inheritance tax?
No. The federal government does not have an inheritance tax. There is a federal estate tax, but it only applies to estates above $13.99 million (in 2026).
Do I have to pay taxes on money I inherit?
It depends on your state. If you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you may owe state inheritance tax. Federal income tax does not apply to inherited money.
How much can I inherit tax-free?
Federally, you can inherit any amount from an estate under $13.99 million without estate tax. For inheritance tax, it depends on your state and relationship to the deceased. Spouses and children are typically exempt in all states.
What states have no inheritance tax?
44 states have no inheritance tax. Only Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance tax.
Are life insurance proceeds taxable?
Life insurance proceeds are not subject to income tax for the beneficiary. However, they may be subject to estate tax if the deceased owned the policy and the total estate exceeds the exemption.
What is the federal estate tax exemption for 2026?
The federal estate tax exemption for 2026 is $13,990,000 per individual ($27,980,000 for married couples). However, this may change if the TCJA exemption increase sunsets.
Inheritance Tax Calculator
Related Resources
- Paycheck Calculator - For tax bracket calculations
- Property Tax Calculator - For inherited real estate
- Capital Gains Calculator - For inherited investments
- Inheritance Tax Questions - Common FAQ answers
- Retirement Tax Planning Guide
- How Much Tax Will I Owe?
- Compare State Taxes - Compare inheritance tax by state
For complex estate planning, consult an estate planning attorney or CPA who specializes in inheritance tax.
