Is Inheritance Taxable? Estate Tax vs. Inheritance Tax Explained
How inheritance and estate taxes work in 2026: the federal $15 million exemption, which states tax inheritances, and when your family might owe state taxes even with no federal bill.
People often ask whether an inheritance is taxable, and the short answer is usually no at the federal level. But the longer answer involves two different taxes, a federal exemption that protects most families, and five states that still tax inheritances based on who receives them. The difference between estate tax and inheritance tax matters because one tax comes from the estate, the other from the beneficiary.
Start with the two taxes, not one
Estate tax and inheritance tax sound similar but work differently. An estate tax applies to the total value of a deceased person's estate before assets get distributed. The estate itself pays this tax. An inheritance tax applies to what each beneficiary actually receives, and the beneficiary pays the tax.
The federal government has an estate tax but no inheritance tax. Some states have one, both, or neither.
- Estate tax: paid by the estate, based on total value
- Inheritance tax: paid by the beneficiary, based on what they receive
- Federal level: estate tax only, with a $15 million exemption per person in 2026
- State level: varies—some states have estate taxes, some have inheritance taxes, Maryland has both
The federal estate tax exemption protects most families
In 2026, the federal estate and gift tax exemption is $15 million per individual, or $30 million for a married couple. This means an estate valued under $15 million owes no federal estate tax. Estates above that threshold pay 40% on the amount over the exemption.
The One Big Beautiful Bill Act, passed in July 2025, made this higher exemption permanent and added inflation adjustments starting in 2027. Before this law, the exemption was set to drop to around $7 million in 2026.
Most families will never touch the federal estate tax threshold. The state-level rules are what actually reach them.
Twelve states and DC have estate taxes with lower thresholds
Even if an estate avoids federal tax, it can still owe state estate taxes. As of 2026, twelve states and the District of Columbia impose estate taxes, often with exemptions far below the federal $15 million.
State estate tax exemptions range from $1 million in Oregon to $13.6 million in Connecticut. The rates also vary, with top rates between 12% and 20%.
| State/Jurisdiction | Estate Tax Exemption (2026) | Top Estate Tax Rate |
|---|---|---|
| Connecticut | $13.6 million | 12% |
| Hawaii | $5.49 million | 10%-20% |
| Illinois | $4 million | 0.8%-16% |
| Maine | $7.16 million | 8%-12% |
| Maryland | $5 million | 0.8%-16% |
| Massachusetts | $2 million | 0.8%-16% |
| Minnesota | $3 million | 13%-16% |
| New York | $7.35 million | 3.06%-16% |
| Oregon | $1 million | 10%-16% |
| Rhode Island | $1.76 million | 0.8%-16% |
| Vermont | $2.75 million | 16% |
| Washington | $3.076 million (through June 30) / $3.0 million (after July 1) | 20% |
| Washington DC | $4,988,400 | 16% |
Five states tax inheritances based on who receives them
Inheritance taxes depend on the beneficiary's relationship to the person who died. As of 2026, five states impose inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Spouses are generally exempt. Children, grandchildren, and sometimes siblings may have partial exemptions or lower rates. More distant relatives, friends, and unmarried partners usually face the full rate.
- Kentucky: exemptions for spouses, children, siblings; 4%-16% for others
- Maryland: 10% flat rate for beneficiaries outside spouse, descendants, ancestors, siblings, stepchildren, stepparents, and children's spouses
- Nebraska: 1% over $100,000 for most non-spouse beneficiaries
- New Jersey: 11%-16% for many non-linear heirs
- Pennsylvania: 0% for spouses, minor children, some parents; 4.5% for adult children; 12% for siblings; 15% for others
Maryland is the only state with both taxes
Maryland imposes both an estate tax (exemption $5 million in 2026) and an inheritance tax. An estate in Maryland could owe both, though spouses and lineal descendants are exempt from the inheritance tax.
This double layer makes Maryland planning more complex. Families with property or residency there should check both taxes before assuming a simple inheritance path.
What to check if you are inheriting
First, identify where the person who died lived and where the property sits. State taxes apply based on residency and property location, not just where you live.
Then check the relationship exemptions. Most inheritance taxes spare immediate family but tax more distant beneficiaries.
Finally, look at the will and beneficiary designations. Some assets, like retirement accounts and life insurance with named beneficiaries, pass outside probate and may have different tax treatment.
The answer depends on three facts: location, relationship, and asset type.
When Legacywyse helps sort the tax question
Legacywyse organizes the estate inventory, property locations, beneficiary details, and state-residency facts that determine whether estate or inheritance taxes apply. It does not calculate tax liability or file returns, but it keeps the records clean for your tax professional.
If you are an executor facing multi-state property or beneficiaries in inheritance-tax states, the organized file shows your tax preparer exactly what they need without reconstruction.
Review note
Published July 4, 2026. Last reviewed June 28, 2026 against the official sources listed below. Legacywyse Journal articles provide general estate, probate, and personal finance information, not legal or tax advice.