Inheritance Tax by State: A 2026 Guide

Most people are surprised to learn that federal law imposes no inheritance tax. The federal government taxes estates — not recipients. State inheritance taxes are a different animal: they're paid by you, not by the estate, and they vary dramatically depending on where the decedent lived and your relationship to them. Here's the full picture for 2026.

Federal Estate Tax: $15 Million Exemption in 2026

The federal estate tax applies to estates exceeding $15,000,000 per individual ($30M per married couple) in 2026.¹ The OBBBA (One Big Beautiful Bill Act, signed July 4, 2025) made this exemption permanent and indexed to inflation — ending the 2026 sunset that had been looming under TCJA. For most inheritance recipients, federal estate tax is not a concern. But state estate taxes have far lower thresholds — as low as $1M in Oregon.

States with an Inheritance Tax in 2026

Five states tax inheritances directly as of 2026. Iowa eliminated its inheritance tax effective January 1, 2025, reducing the list from six to five.

Kentucky — Class C Only (After Major 2026 Reform)

Kentucky made sweeping changes effective January 1, 2026. As of now, only Class C beneficiaries — distant relatives and non-family — pay Kentucky inheritance tax.

• Class A (fully exempt): spouses, children, parents, grandchildren, great-grandchildren, siblings
• Class B (fully exempt as of Jan 1, 2026): nieces, nephews, half-nieces/nephews, aunts, uncles, sons-in-law, daughters-in-law, great-grandchildren not in Class A
• Class C (taxable): all others — $500 exemption, rates 6%–16% on the balance²

If you inherited from a Kentucky decedent and you're any kind of family — even extended family — you likely owe nothing under 2026 rules.

Maryland — 10% Flat Rate on Non-Close Family

Maryland is unique: it's the only state with both a state inheritance tax AND a state estate tax.³ The inheritance tax is simple: a flat 10% on the clear value received by non-exempt beneficiaries.

• Exempt (0%): spouses, parents, children, grandchildren, grandparents, siblings (exempted since July 1, 2000)
• Taxable at 10%: nieces, nephews, cousins, friends, domestic partners, and other non-close-family beneficiaries

Maryland has no minimum threshold — any amount received by a non-exempt beneficiary is subject to the 10% rate. A $50K bequest to a cousin costs $5K in state inheritance tax.

Maryland's state estate tax adds another layer: estates over $5M face graduated rates up to 16%, regardless of the federal $15M exemption. A Maryland resident with a $7M estate owes zero federal estate tax but up to $2M× in state estate tax.

Nebraska — Low Rates for Family, 15% for Non-Family

Nebraska substantially reformed its inheritance tax law, effective July 1, 2025, cutting rates and doubling exemptions for family beneficiaries.⁴

• Spouses and charities: fully exempt
• Class 1 — lineal family (parents, grandparents, children, siblings, lineal descendants and their spouses): $100,000 exemption, 1% on the balance
• Class 2 — extended family (aunts, uncles, nieces, nephews by blood or adoption, and their spouses): $100,000 exemption, 1% on the balance
• Class 3 — all others (friends, non-family, distant relatives): $25,000 exemption, 15% on the balance

Nebraska's 15% Class 3 rate is among the highest in the country. A $500K bequest from a Nebraska decedent to a friend results in $71,250 in state inheritance tax ($500K − $25K = $475K × 15%).

New Jersey — Family Exempt; Siblings and Non-Family Pay

New Jersey no longer has a state estate tax (repealed 2018) but does maintain an inheritance tax for non-immediate-family beneficiaries.⁵

• Class A (fully exempt): spouses, civil union partners, children, stepchildren, grandchildren, great-grandchildren, parents, grandparents
• Class C — siblings and certain in-laws: $25,000 exempt; then 11% on $25K–$1.1M; 13% on $1.1M–$1.4M; 14% on $1.4M–$1.7M; 16% above $1.7M
• Class D — all others (nieces, nephews, cousins, friends, non-family): 15% on amounts up to $700K; 16% above $700K (no exemption)
• Class E (charities): fully exempt

Domestic partners not in a civil union fall into Class D in NJ — a common surprise for unmarried couples who thought they'd be treated like spouses.

Pennsylvania — 4.5% Even for Adult Children

Pennsylvania's inheritance tax is among the most commonly encountered because it applies to adult children — not just distant relatives.⁶ There is no minimum threshold; even small inheritances are taxable.

• Spouses and minor children (under 21): 0%
• Lineal heirs (parents, adult children over 21, grandchildren, great-grandchildren): 4.5%
• Siblings: 12%
• All others (cousins, nieces, nephews, friends, non-family): 15%

A Pennsylvania resident leaving $1M to their adult child creates a $45,000 inheritance tax bill for that child. Many Pennsylvania heirs are caught off-guard because the federal return shows no liability, but the state return does.

One planning note: Pennsylvania inheritance tax has a 5% discount if paid within 3 months of the decedent's death. For large estates, that timing saves real money.

States with Estate Tax Only (No Inheritance Tax)

The following states tax the estate before assets reach beneficiaries. If you're inheriting from a decedent who lived in one of these states, the estate attorney handles the filing — you typically don't owe a separate tax. But the estate's net value (what passes to you) will be reduced by any state estate tax liability.

The 40+ States with No Inheritance or Estate Tax

If the decedent lived in any state not listed above — including Florida, Texas, California, Arizona, Nevada, Colorado, and most others — there is no state-level inheritance or estate tax. You owe nothing to the state. Federal tax applies only if the estate exceeds $15M.

Income Tax on Inherited Assets (Separate from Inheritance Tax)

Regardless of which state the decedent lived in, inherited assets can trigger ordinary income tax when you receive distributions. This is separate from inheritance tax.

• Inherited IRA / 401(k): distributions taxed as ordinary income. The 10-year rule (SECURE Act) requires full depletion within 10 years for most non-spouse beneficiaries. Optimizing distribution timing across the 10 years is one of the highest-value planning moves available. Use our inherited IRA 10-year drawdown calculator to model strategies.
• Inherited brokerage (stocks/funds): step-up in basis to date-of-death value means appreciation before death is typically not taxable. Future gains on post-inheritance appreciation are taxed. Use our step-up basis calculator to estimate your tax savings.
• Inherited real estate: step-up basis also applies. If you sell shortly after inheriting, capital gain is near zero. Rental income from the property is ordinary income.
• Cash, life insurance: generally not taxable as income.

Planning Strategies When Inheritance Tax Applies

If you're inheriting from a decedent in one of the five inheritance-tax states:

1. Timing of distributions matters for trusts. Some trust documents allow a trustee to time distributions in ways that reduce exposure.
2. Pennsylvania's 5% early-payment discount. If you're a PA beneficiary, paying the inheritance tax within 3 months of death saves 5% — worthwhile on large inheritances.
3. Disclaimers. If you don't need the assets and inheriting would create a large inheritance tax bill, a qualified disclaimer (within 9 months of death) lets the assets pass to the next beneficiary — potentially someone in an exempt class.
4. Move domicile before death (planning for the decedent, not usually post-mortem). Many estate attorneys counsel NJ and PA clients to establish Florida or Texas domicile — both have zero inheritance or estate tax. Maryland and Nebraska residents face similar incentives.

Questions to Ask Your Advisor

• Which state's inheritance tax applies — is it where the decedent lived, where I live, or where the property is located? (For real estate, it's typically where the property is; for other assets, it's the decedent's state.)
• Is the estate large enough to trigger state estate tax? Did the estate attorney account for this in the administration?
• Are there liquidity issues? (Inheriting an illiquid asset like real estate in PA means the 4.5% tax bill requires cash from somewhere.)
• Does the trust document have any provisions that affect the tax classification of distributions?

Sources

1. IRS — 2026 Inflation Adjustments and OBBBA estate exemption ($15M per person). Federal estate tax exemption $15M per individual, permanent under OBBBA signed July 4, 2025.
2. Kentucky Department of Revenue — Inheritance & Estate Tax. Class B beneficiaries fully exempt effective January 1, 2026.
3. Maryland Register of Wills — Inheritance Tax. Flat 10% rate on non-exempt beneficiaries; siblings exempt since July 1, 2000.
4. Nebraska Department of Revenue — Chapter 17 Inheritance Tax. 2025 reform: Class 1 & 2 $100K exemption / 1%; Class 3 $25K / 15%, effective July 1, 2025.
5. NJ Inheritance Tax — Rates, Beneficiary Classes & 2026 Update. Class A exempt; Class C 11–16% above $25K; Class D 15–16%.
6. Pennsylvania Department of Revenue — Inheritance Tax. Lineal heirs 4.5%; siblings 12%; others 15%. 5% discount if paid within 3 months.

State inheritance and estate tax rules change. Rates and exemptions verified against 2026 sources. Consult a licensed estate attorney for your specific situation. Values current as of April 2026.