Is Inheritance Taxable in 2026? What Heirs Actually Owe

Last updated 07/13/2026 by

Andrew Latham

Edited by

Andrew Latham

Summary:

Inheritance is generally not taxable to you at the federal level, because inherited money and property are not counted as income. A few specific assets, and a handful of states, are the exceptions.

Cash and property: Most inheritances arrive free of federal income tax.
Retirement accounts: Withdrawals from an inherited IRA or 401(k) are taxed.
Selling assets: Gains after the date of death can be taxed.
State rules: A few states tax inheritances directly.

Inheriting money or property brings enough to sort out without worrying the IRS will take a share.

For most inheritances, it will not. The federal government does not tax what you inherit as income, though a few exceptions and some state rules can apply.

Is inheritance taxable?

For most people, no. There is no federal inheritance tax, and money or property you inherit is not treated as taxable income.

The exceptions are inherited retirement accounts, gains when you sell inherited assets, the federal estate tax on very large estates, and inheritance taxes in a few states.

What you inherit	Taxable to you?
Cash or property (most inheritances)	No federal income tax
Withdrawals from an inherited traditional IRA or 401(k)	Yes, taxed as income
Selling an inherited asset that gained value after the death	Capital gains on the gain since the date of death
An estate worth more than $15 million in 2026	Estate tax, paid by the estate, not you
An inheritance in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania	A state inheritance tax may apply

When an inheritance is taxed

The most common exception is an inherited retirement account. Withdrawals from an inherited traditional IRA or 401(k) are taxed as ordinary income, and most non-spouse beneficiaries must empty the account within 10 years.

Selling inherited assets is the other one. When you inherit property or investments, your cost basis is stepped up to the fair market value on the date of death, which erases the gains that built up during the original owner’s life.

You only owe capital gains tax on appreciation after that date, so selling soon after inheriting often means little or no gain. That reset is called the step-up in basis.

Estate tax vs inheritance tax

These two are easy to confuse but work differently. Estate tax is paid by the estate before assets pass to you, while inheritance tax is paid by you, the heir.

Federal estate tax applies only to estates above $15 million per person in 2026, at a top rate of 40%, so the vast majority of estates owe nothing.

Only five states levy an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The rate usually depends on your relationship to the deceased, and spouses, and often children, are exempt.

Pro Tip: Get a date-of-death valuation before you sell anything.

The step-up in basis resets an inherited asset’s value to its worth on the date of death, so a documented valuation is what limits your capital gains later. Selling soon after inheriting, while the value is close to that basis, keeps any taxable gain small.

Key takeaways

There is no federal inheritance tax, and inherited money or property is not taxable income to you.
Withdrawals from an inherited traditional IRA or 401(k) are taxed as ordinary income.
Selling inherited assets triggers capital gains only on appreciation after the date of death.
Federal estate tax applies only above $15 million in 2026 and is paid by the estate.
Five states, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, tax inheritances directly.

Frequently asked questions

Do you pay taxes on inherited money?

Not as federal income. Inherited cash is not taxable to you, though any income it later earns, such as interest or dividends, is taxable like any other earnings.

Is an inherited IRA taxable?

Withdrawals from an inherited traditional IRA or 401(k) are taxed as ordinary income, since that money was never taxed. An inherited Roth account generally comes out tax-free, and most non-spouse heirs must withdraw the full balance within 10 years.

Which states have an inheritance tax?

As of 2026, five states levy one: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The rate depends on your relationship to the deceased, and close relatives are often exempt.