Who pays and who is free.

If you know someone has left you something small in their will, you won’t need to pay inheritance tax on it.

There is no federal inheritance tax, and only five states have inheritance taxes.

So unless the deceased lived in one of these states, you don’t have to pay inheritance tax. And even if you live in one of those states, you may not have to pay.

Inheritance tax is a government tax paid by the person who inherits money.

If the person who left the money lives in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, the beneficiary — the person who gets the money or property — must pay inheritance tax to that state’s department of income. (Note that Iowa had an inheritance tax that expired on December 31, 2024.)

It doesn’t matter where the user lives. Inheritance tax is triggered on the date the deceased lived and died. That means a non-resident of a state will have to pay that state’s tax.

The amount of tax and the limit to be paid depends on the amount of inheritance.

Rates are progressive, meaning the larger the assets, the higher the rate, and rates are based on the fair market value of the assets.

A word about estate taxes: Although both are forms of death taxes, inheritance taxes and estate taxes are not the same. Both are levied at death, but the person who inherits the property pays inheritance tax and the deceased’s estate pays estate tax, which can reduce the total value of the estate.

Connecticut, Washington, DC, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Washington, and Vermont have estate taxes as part of their state tax laws.

Maryland is the only state with both inheritance and estate taxes.

There is also a federal estate tax, but most states do not require it. According to the Institute on Taxation and Economic Policy (ITEP), only eight out of 10,000 people leave a significant gap to raise their federal estate tax.

Whether or not you pay inheritance tax depends on where the deceased lived, how much they left you and your relationship with them.

If the decedent lived in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you may owe that state’s inheritance tax even if you don’t live there.

Say you live in Florida. If someone dies in Nebraska and leaves money, real estate, or personal property, you may have to file a Nebraska tax return and pay taxes.

But the closer you are to the deceased, the less likely you are to be taxed on the money you inherit.

For example, surviving spouses, parents, children and grandchildren are exempt from paying inheritance tax, while siblings, nieces or nephews may need to pay. But these parameters vary depending on the situation. In some states, only the surviving spouse is exempt.

There are also limits on the amount of money that can trigger the tax, which vary by state. The higher the value of the property, the higher the tax rate.

For example, in New Jersey, the first $25,000 of inheritance is free for all, but an 11% tax applies to siblings between $25,001 and $1,075,000. That percentage increases to 14% for values ​​between $1,075,001 and $1,375,000. The highest percentage, 16%, starts an inheritance worth more than $1,700.000.

In New Jersey, a beneficiary who is not related to the decedent or a nonprofit or religious institution pays a tax of 15% on any inheritance up to $700,000 and 16% on any inheritance.

Here are the inheritance tax, exempt, semi-exempt, and taxable points.

Remember, if a person has to pay inheritance tax, it is on the value above the threshold. For example, a sibling of someone who dies in New Jersey and is left $50,000 would have to pay $2,750 in taxes because there is no tax on the first $25,000 and the tax rate is 11% on the additional $25,000.

Estate tax is levied on the decedent’s estate before it is distributed to heirs, and inheritance tax is levied on the estate’s heirs. Property tax is based on the total value of the property and inheritance tax is based on the amount received by each beneficiary. Both are separate from income tax.

Twelve states and Washington, DC have an estate tax with a property tax return. Five have inheritance tax. Only one state, Maryland, has both.

There is also a federal estate tax, and in 2025 that tax will only kick in if the estate’s valuation is over $13,990,000.

There is no federal inheritance tax.

No… In all states with an inheritance tax, married couples are exempt.

No. Inheritance tax is paid in the place where the deceased lives, not where the person receiving the inheritance lives.

Moving to another state without inheritance tax prevents your heirs from paying inheritance tax. But that is not always practical.

If you live in a state with an inheritance tax, you may be able to give away some assets during your lifetime. By 2025, the IRS will allow parents to give up to $19,000 tax-free to one person as a child.

Also, the beneficiary can purchase a life insurance policy with a tax-free death benefit.

Talking to an estate planning professional can help.

You may have to pay tax on the money you receive from the sale of inherited property if you sell it at a profit. There is no tax if you inherit the property and hold it.

What you pay and how much you pay depends on the fair market value of the property when the person who gave it to you dies.