Glossary term
Inheritance Tax
Inheritance tax is a tax some jurisdictions impose on beneficiaries who receive property from someone who has died.
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What Is Inheritance Tax?
Inheritance tax is a tax imposed on a beneficiary who receives property from someone who has died. It is different from an estate tax, which is generally paid by the estate before assets are distributed.
The United States does not have a federal inheritance tax, but some states impose inheritance taxes. Whether a beneficiary owes tax can depend on the state, the value of the inheritance, the type of property, and the beneficiary’s relationship to the decedent.
Key Takeaways
- Inheritance tax is paid by the recipient of inherited property in jurisdictions that impose it.
- Estate tax is generally paid by the estate, not directly by each beneficiary.
- There is no federal U.S. inheritance tax, but some states have inheritance-tax rules.
- Inherited property can also create income-tax issues when it is later sold.
Inheritance Tax Versus Estate Tax
The distinction is who the tax is imposed on. Estate tax looks at the decedent’s estate. Inheritance tax looks at the beneficiary’s receipt. A close family member may be treated differently from a distant relative or unrelated beneficiary under state rules.
Tax Type | Who It Applies To | Common Trigger |
|---|---|---|
Inheritance tax | Beneficiary receiving property. | Receipt of inherited assets in a taxing jurisdiction. |
Estate tax | Estate of the person who died. | Estate value above applicable exemption or threshold. |
Income tax on sale | Beneficiary who later sells inherited property. | Gain measured against the beneficiary’s tax basis. |
Basis and Later Sales
Even when no inheritance tax applies, inherited property may matter for income taxes later. The beneficiary usually needs to know the basis of the inherited property to calculate gain or loss on a later sale. IRS guidance generally looks to fair market value at the date of death or an alternate valuation date when applicable.
State inheritance-tax rules can change, and the details are jurisdiction-specific. This entry is educational, not tax advice.
The Bottom Line
Inheritance tax is a beneficiary-level tax on inherited property in jurisdictions that impose it. It should be distinguished from estate tax and from income tax that may arise when inherited property is later sold.