Inheritance Tax Questions Answered (2026 Rules)
Complete FAQ guide to inheritance tax in 2026. How much is inheritance tax, estate vs inheritance tax, state rules, and how to calculate.
Inheritance tax is one of the most misunderstood taxes in America. Many people confuse it with estate tax, don't know if their state has one, or aren't sure if they owe taxes on money they've inherited. This FAQ guide answers the most common inheritance tax questions for 2026.
Official Source
Federal estate tax rules are on the IRS Estate Tax page. State inheritance tax rules are at each state's Department of Revenue.
How Much Is Inheritance Tax?
Inheritance tax varies by state and by your relationship to the deceased person:
States with Inheritance Tax (2026)
| State | Spouse | Children | Siblings | Others |
|---|---|---|---|---|
| Kentucky | 0% | 0% | 4-16% | 6-16% |
| Maryland | 0% | 0% | 10% | 10% |
| Nebraska | 0% | 1% | 6-11% | 18% |
| New Jersey | 0% | 0% | 11-16% | 15-16% |
| Pennsylvania | 0% | 4.5% | 12% | 15% |
Iowa phased out its inheritance tax for deaths occurring on or after January 1, 2025.
There is no federal inheritance tax. The federal government only has an estate tax (paid by the estate before distribution).
How Much Is Estate Tax?
The federal estate tax applies only to estates valued above $13,990,000 (in 2026). The rate is 40% on the amount above the exemption.
For estates below $13.99 million, no federal estate tax is owed.
State Estate Tax
12 states have their own estate tax with much lower exemptions:
- Oregon: $1,000,000 exemption, up to 16% rate
- Massachusetts: $2,000,000 exemption, up to 16% rate
- New York: $6,940,000 exemption, up to 16% rate
- Washington: $2,193,000 exemption, up to 20% rate
How Much Is the Estate Tax Exemption in 2026?
The federal estate tax exemption for 2026 is $13,990,000 per individual ($27,980,000 for married couples).
Important: The Tax Cuts and Jobs Act of 2017 doubled this exemption, but it is scheduled to sunset on December 31, 2025. For 2026, the exemption may revert to approximately $7-8 million per individual. Check current law, as this is politically contested.
How Do Estate Taxes Work?
Estate taxes work as follows:
- When someone dies, their estate is valued (all assets minus debts)
- If the estate value exceeds the exemption, the estate files IRS Form 706
- The estate pays 40% tax on the amount above the exemption
- The remaining assets are distributed to heirs
- Heirs may then owe state inheritance tax (depending on state and relationship)
The executor of the estate handles all tax filings and payments before distributing assets to heirs.
Is Inheritance Tax Federal?
No. There is no federal inheritance tax. The federal government has an estate tax (paid by the estate), not an inheritance tax (paid by the heir).
Only 6 states have an inheritance tax: Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Is Real Estate Tax the Same as Estate Tax?
No, these are completely different taxes:
- Real estate tax (property tax): Annual tax on property you own, paid to local government
- Estate tax: One-time tax on the transfer of a deceased person's estate, paid by the estate
Real estate tax is an ongoing annual expense. Estate tax is a one-time event when someone dies.
Can Estate Tax Be Paid in Installments?
Yes, under IRS Section 6166, estates that include a closely held business can pay the estate tax in installments over up to 15 years. The first payment is due 5 years after the death, with annual payments thereafter.
Interest is charged on the deferred tax, but at a special 2% rate for the first $1.5 million of taxable estate (adjusted for inflation).
How Is Inheritance Tax Calculated?
Inheritance tax is calculated based on:
- The value of assets you receive
- Your relationship to the deceased (spouse, child, sibling, non-relative)
- Your state's tax rate and exemption
Example: You inherit $100,000 from your uncle in Pennsylvania.
- Relationship: "All others" = 15% rate
- Exemption: $0 for non-relatives
- Tax: $100,000 × 15% = $15,000
- You receive: $85,000
Use our Property Tax Calculator for inherited real estate tax estimates.
Do I Have to Pay Taxes on Money I Inherit?
Federally: No. You don't pay federal income tax on inherited money.
State: Maybe. If you live in (or the deceased lived in) a state with inheritance tax (KY, MD, NE, NJ, PA), you may owe state inheritance tax.
Income tax: Inherited money itself is not income. However, any earnings on inherited assets (interest, dividends, capital gains) are taxable.
What Is the Difference Between Estate Tax and Inheritance Tax?
| Feature | Estate Tax | Inheritance Tax |
|---|---|---|
| Who pays | The estate | The heir |
| When | Before distribution | After receiving |
| Federal | Yes (above $13.99M) | No |
| State | 12 states | 6 states |
Simple rule: Estate tax is paid by the dead person's estate. Inheritance tax is paid by the living person who receives the inheritance.
