Is inheritance taxable income? For most families, the answer is no. Under federal law, money or property you inherit is not counted as income on your federal tax return. You generally do not report a cash inheritance on your Form 1040. However, there are a few important exceptions. Some inherited accounts, like traditional IRAs, are taxed when you take money out. Five states also charge a separate inheritance tax. If you are settling a loved one’s estate right now, this guide walks you through what is taxed, what is not, and what to check next.
Is Inheritance Taxable Income Under Federal Law?
The short federal answer comes from Internal Revenue Code Section 102. It says gross income does not include property received “by gift, bequest, devise, or inheritance.” You can read the law at 26 U.S. Code § 102 on Cornell LII. In plain English, the inheritance itself is not income to you.
The IRS confirms this in its own guidance. It explains that cash, property, and other assets you inherit are generally not taxable to you. See the IRS FAQ on gifts and inheritances. As a result, a $50,000 check from a parent’s estate typically adds nothing to your federal taxable income.
So is inheritance taxable income in every case? Not quite. What an inherited asset earns after the death can be taxable. For example, interest, dividends, or rent earned after you receive the asset count as your income. The original gift is tax-free, but the growth is not.
The Exceptions: Retirement Accounts, Sales, and Estate Tax
Some assets carry built-in income the person never paid tax on. The IRS calls this “income in respect of a decedent” under Section 691. The most common example is a traditional IRA or 401(k). When you withdraw from an inherited traditional account, those withdrawals are typically taxed as ordinary income.
Under the SECURE Act, most non-spouse heirs must empty an inherited IRA within 10 years. Spouses, minor children, disabled or chronically ill heirs, and heirs no more than 10 years younger get special rules. Inherited Roth IRAs are usually tax-free if the account was open at least five years.
Selling inherited property is another case. Under Section 1014, your cost basis usually “steps up” to the value on the date of death. Basis is simply the starting value used to figure gain. For example, if Mom bought stock for $10,000 and it was worth $60,000 when she died, your basis is $60,000. Sell it for $62,000, and only the $2,000 gain is taxable.
Federal estate tax is separate from income tax. It is paid by the estate, not by you. For 2026, the federal exemption is $15 million per person. In most cases, very few estates owe it. See the IRS estate tax page.
States That Charge an Inheritance Tax in 2026
A state inheritance tax is different from income tax. It is a tax on the heir based on their relationship to the person who died. Iowa fully repealed its inheritance tax for deaths on or after January 1, 2025. That leaves five states. Spouses are exempt in all five.
| State | Who Is Exempt | Rates for Others |
|---|---|---|
| Pennsylvania (72 P.S. § 9116) | Spouse; parent inheriting from a child 21 or younger | 4.5% children and grandchildren; 12% siblings; 15% others |
| New Jersey (N.J.S.A. 54:34-2) | Spouse, domestic partner, children, grandchildren, parents | Siblings: 11%–16% after first $25,000; others 15%–16% |
| Kentucky (KRS 140.070) | Spouse, children, grandchildren, parents, siblings | Class B 4%–16%; Class C 6%–16% |
| Maryland (Tax-General § 7-204) | Spouse, children, descendants, parents, siblings, and more | 10% flat rate |
| Nebraska (Neb. Rev. Stat. § 77-2004) | Spouse | 1% close relatives over $100,000; 11% over $40,000; 15% over $25,000 |
Location matters here. The tax typically depends on where the person who died lived, or where real estate sits, not where you live. For example, a Florida resident inheriting from a Pennsylvania parent may still owe Pennsylvania’s 4.5% rate. Pennsylvania offers a 5% discount if paid within three months of death. The tax is due within nine months. Learn more from the Pennsylvania Department of Revenue or the New Jersey Division of Taxation.
What to Do Next If You Have Inherited Money or Property
First, take a breath. Nothing usually needs to happen today. Start by making a simple list of what you received. Note whether each item is cash, real estate, investments, or a retirement account.
Next, ask the executor for the date-of-death values. An executor is the person named in the will to settle the estate. Those values set your stepped-up basis. Keep them with your tax records for as long as you own the asset.
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Then, look for tax forms in the mail. You may get a 1099-R for retirement withdrawals or a 1099-INT for interest. Estates and trusts that pass income to you send a Schedule K-1. These amounts typically go on your return, even though the inheritance itself does not.
Finally, check the state rules. If the person lived in one of the five states above, ask the executor whether an inheritance tax return was filed. If you inherited from someone abroad worth more than $100,000, you may need to file IRS Form 3520. It is a reporting form, not a tax. When in doubt, check with your state’s revenue department or a licensed tax professional.
Frequently Asked Questions
Do I have to report an inheritance on my tax return?
In most cases, no. A cash inheritance is not reported as income on your federal Form 1040. However, any interest, dividends, or retirement withdrawals that follow are typically reported.
Is inheritance taxable income if I sell the inherited house?
The house itself is not income. However, if you sell it for more than its value at death, the gain may be taxed. As a result, many heirs who sell soon after a death owe little or nothing.
Is inheritance taxable income for a spouse?
Generally, no. Spouses are exempt from inheritance tax in all five states that have one. For example, a surviving spouse in New Jersey or Pennsylvania typically owes no state inheritance tax at all.
Make Sure Your Plan Actually Works
A will or trust only does its job if the rest of your plan lines up. Two quick checks before you finish:
- Get your state’s exact rules — witnesses, notary, probate cost, and tax thresholds vary by state.
- Beneficiary forms beat your will — make sure your life-insurance beneficiaries are current, because named beneficiaries pass outside your will.
Sources & How to Verify
This guide is built from official sources. Always confirm the exact figure for your state:
- IRS — Estate & Gift Tax: irs.gov
- USA.gov — What to do when someone dies: usa.gov/death
- Uniform Law Commission (probate): uniformlaws.org
- Cornell Legal Information Institute: law.cornell.edu
- Your state’s probate court self-help portal and revenue department for the current statute and dollar figures.
Verified October 2026. Estate figures change — if you spot anything outdated, please contact us.
Related Guides
- Wills by State
- Trusts & Living Trusts by State
- Estate & Inheritance Tax by State
- Plain-English Estate Glossary
Disclaimer. This page is for general information only and is not legal or tax advice. Wills, probate, and estate-tax rules vary by state, county, and situation, and change over time. We are not a law firm, tax advisor, or financial planner, and we assume no liability for accuracy or completeness. For your specific situation — especially an active probate or a tax deadline — verify with your state’s court, statute, revenue department, or a licensed attorney in your state.