Inheritance Tax Calculator
Your Tax Breakdown
Detailed Breakdown
Exemption Details
Common Mistakes to Avoid
- Don’t confuse federal estate tax with state inheritance tax (they’re different)
- Spouses usually pay zero tax due to unlimited marital deduction
- The $13.99M federal exemption applies to the estate, not each beneficiary
- Life insurance proceeds and retirement accounts may have special tax treatment
How Inheritance Tax Works
Inheritance tax and estate tax are not the same thing, and that confusion costs people money. Estate tax gets paid by the deceased person’s estate before assets get distributed. Inheritance tax gets paid by the person receiving the inheritance.
The federal government charges estate tax, not inheritance tax. Only six states charge inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Twelve states plus DC charge their own estate tax on top of federal.
Here’s the basic calculation:
State Tax = Varies by state and relationship
Net Inheritance = Estate Value – Federal Tax – State Tax
For 2025, the federal exemption is $13.99 million per person ($27.98 million for married couples). If the estate is worth less than that, you pay zero federal estate tax. If it’s worth $15 million, only $1.01 million gets taxed.
Progressive Tax Rates
Like income tax, estate tax uses brackets. The first chunk above the exemption gets taxed at 18%, then 20%, climbing to 40% on amounts over $1 million above the exemption.
An estate worth $15 million owes tax on $1.01 million (after the $13.99M exemption). That $1.01 million gets taxed progressively, resulting in roughly $400,000 in federal tax.
Federal Estate Tax Explained
The $13.99 Million Exemption
This is indexed for inflation and changes every year. In 2024 it was $13.61 million. For 2025 it’s $13.99 million. But this exemption is set to drop dramatically in 2026 when the Tax Cuts and Jobs Act expires.
Starting January 1, 2026, the exemption falls to around $7 million (adjusted for inflation). Estates worth $10 million will suddenly owe federal tax when they wouldn’t have in 2025.
Unlimited Marital Deduction
Spouses inherit tax-free, period. You can leave $50 million to your spouse and pay zero federal estate tax. The tax doesn’t hit until the second spouse dies and the money passes to kids or other heirs.
Plus, surviving spouses can use portability to claim any unused exemption from the deceased spouse. If the first spouse dies using only $5 million of their $13.99 million exemption, the surviving spouse gets to keep the leftover $8.99 million, giving them a total exemption of $22.98 million.
State Inheritance and Estate Taxes
States With Inheritance Tax
These states tax the person receiving the inheritance based on relationship to the deceased:
| State | Spousal Rate | Child Rate | Other Rate |
|---|---|---|---|
| Iowa | 0% | 0% | Up to 15% |
| Kentucky | 0% | 0% | Up to 16% |
| Maryland | 0% | 0% | 10% |
| Nebraska | 0% | 1% | Up to 18% |
| New Jersey | 0% | 0% | Up to 16% |
| Pennsylvania | 0% | 4.5% | Up to 15% |
Notice spouses always pay zero. Children are usually exempt or pay very low rates. Siblings, nieces, nephews, and unrelated people pay the highest rates.
States With Estate Tax
These states tax the estate itself before distribution, similar to federal:
| State | Exemption | Top Rate |
|---|---|---|
| Connecticut | $13.99M | 12% |
| Hawaii | $5.49M | 20% |
| Illinois | $4M | 16% |
| Massachusetts | $2M | 16% |
| Minnesota | $3M | 16% |
| New York | $7.16M | 16% |
| Oregon | $1M | 16% |
| Rhode Island | $1.8M | 16% |
| Vermont | $5M | 16% |
| Washington | $2.2M | 20% |
Maryland is the only state with both an estate tax and an inheritance tax. Connecticut matches the federal exemption, making it basically irrelevant unless the federal exemption drops in 2026.
Edge Cases and Common Questions
What About Life Insurance?
Life insurance proceeds go to beneficiaries income tax-free. But they’re included in the estate for estate tax purposes if the deceased owned the policy.
If your dad had a $5 million life insurance policy and a $10 million estate, the total estate for tax purposes is $15 million. Still under the federal exemption, so no federal tax. But if the combined value exceeds $13.99 million, the insurance pushes you over.
Smart planning puts life insurance in an irrevocable life insurance trust (ILIT) to keep it out of the taxable estate entirely.
Do I Pay Income Tax on Inheritance?
No. Inherited money itself is not taxable income at the federal level. You don’t report it on your 1040. Estate tax gets paid by the estate, and what you receive is yours free and clear for income tax purposes.
But income generated by inherited assets is taxable. If you inherit $500,000 and invest it, the dividends and interest are taxable income. If you inherit rental property, the rent is taxable.
What If I Inherit a Retirement Account?
Inherited IRAs and 401(k)s have special rules. The money was never taxed (for traditional accounts), so withdrawals are taxable income to you.
Under the SECURE Act, most non-spouse beneficiaries must empty inherited retirement accounts within 10 years. You don’t have to take annual distributions, but the whole account must be withdrawn by year 10, and each withdrawal gets taxed as ordinary income.
Spouses can roll the account into their own IRA and delay distributions until their required minimum distribution age, usually 73 or 75 depending on birth year.
Can Gifts Reduce Estate Tax?
Yes. You can give $18,000 per person per year (2024 amount, indexed annually) without it counting against your lifetime exemption. A married couple can give $36,000 per recipient.
Give $18,000 to each of your three kids every year for 10 years, and you’ve moved $540,000 out of your estate tax-free. Over time, this significantly reduces estate size and tax liability.
Gifts above $18,000 per person require filing a gift tax return and count against your lifetime $13.99 million exemption. But you don’t pay tax until you’ve given away more than $13.99 million total during life and at death combined.
Real-World Examples
Small Estate, No Tax
John dies in California with a $2 million estate (house, savings, retirement accounts). California has no estate tax. The estate is well below the $13.99 million federal exemption. His two kids split everything and pay zero tax.
Large Estate, Federal Tax Applies
Susan dies in Florida with a $20 million estate. Florida has no estate tax. After the $13.99 million federal exemption, $6.01 million is taxable. Progressive federal rates result in roughly $2.4 million in estate tax. Her heirs receive $17.6 million.
State Estate Tax Hits Lower Threshold
Mike dies in Massachusetts with a $3 million estate. Federal exemption covers it, so zero federal tax. But Massachusetts exempts only $2 million. The $1 million over that threshold gets taxed at up to 16%, costing around $100,000 in state estate tax.
Inheritance Tax on Distant Relative
Your aunt in Pennsylvania leaves you $200,000. You’re a nephew, which means Pennsylvania charges 15% inheritance tax on transfers to nephews. You pay $30,000 in state tax and receive $170,000.
If her child inherited that same $200,000, they’d pay only 4.5% ($9,000), keeping $191,000. Relationship matters enormously in inheritance tax states.
Quick Reference Table
| Estate Value | Federal Tax (2025) | Net After Federal |
|---|---|---|
| $5M | $0 | $5M |
| $10M | $0 | $10M |
| $15M | ~$400K | ~$14.6M |
| $20M | ~$2.4M | ~$17.6M |
| $30M | ~$6.4M | ~$23.6M |
| $50M | ~$14.4M | ~$35.6M |
Frequently Asked Questions
Do I need to report inheritance on my tax return?
No, inherited money is not taxable income. You don’t report the inheritance itself. But you do report income generated by inherited assets (interest, dividends, rent, capital gains when you sell).
What’s the difference between estate tax and inheritance tax?
Estate tax is paid by the deceased person’s estate before assets get distributed. Inheritance tax is paid by the person receiving the inheritance. Most people only deal with estate tax since only six states have inheritance tax.
Can the government take my inheritance?
Only through estate or inheritance tax if the amounts exceed exemptions. They can’t arbitrarily seize inherited property. But if the deceased owed taxes or debts, those get paid from the estate before you receive anything.
How long do I have to pay inheritance tax?
Federal estate tax is due nine months after death (extensions possible). State deadlines vary but typically range from nine to 18 months. Miss the deadline and you’ll pay interest and potential penalties.
Is there a way to avoid estate tax legally?
Yes. Give assets away during life (using annual gift exclusions and lifetime exemption), create irrevocable trusts, donate to charity, use life insurance trusts, or set up family limited partnerships. Estate planning attorneys specialize in this.
When to Use This Calculator
Use this tool when a family member dies and you need to estimate tax liability, when planning your own estate to see if you’ll hit federal or state thresholds, when deciding whether to make lifetime gifts to reduce your taxable estate, or when comparing potential inheritance amounts in different states.
It’s also useful for financial advisors, attorneys, and executors doing rough calculations before engaging accountants for final tax returns.
Bottom line: this calculator shows you how much of an estate disappears to taxes so you can plan accordingly, whether you’re receiving or leaving an inheritance.