Indiana Inheritance Tax: What Heirs Actually Owe (And Why It Was Repealed)

The fear of inheritance tax comes up almost immediately after a death in Indiana. Someone in the family mentions they heard the state takes a cut of whatever you inherit. A quick online search turns up old articles referencing "Form IH-14" and "consent to transfer." The confusion is completely understandable — and it's costing families hours of unnecessary worry.

Here's the short answer: Indiana has no inheritance tax. The state legislature repealed it entirely. If your loved one died after December 31, 2012, nobody who inherits from that estate owes Indiana any inheritance tax, regardless of their relationship to the decedent or the size of the estate.

That said, there are still taxes that apply to an Indiana estate. Understanding exactly which ones matter — and which ones don't — is one of the first things to get straight before you do anything else.

Indiana's Inheritance Tax Repeal: What It Means

Indiana's inheritance tax was formally eliminated by the Indiana General Assembly for all persons dying after December 31, 2012. Before repeal, the state imposed a graduated tax on inheritances based on the heir's relationship to the decedent — spouses paid nothing, but more distant relatives and unrelated beneficiaries paid increasing rates up to 20%.

That entire framework is gone. There is no state tax owed simply because you inherited property, money, or assets from an Indiana resident who died after 2012.

What About Form IH-14?

Form IH-14 was Indiana's "Consent to Transfer" form, required under the old inheritance tax regime. Financial institutions and title companies used to require this form — signed off by the Indiana Department of Revenue — before they would release assets to heirs. It was proof that the state had reviewed the estate and cleared it for distribution.

Form IH-14 is no longer required. The Indiana Department of Revenue discontinued it when the inheritance tax was repealed. If you encounter old legal guides, local attorneys, or bank branch employees asking for a Consent to Transfer or Form IH-14 for a death that occurred after December 31, 2012, you are dealing with outdated information. The form simply does not exist in the current Indiana tax system.

Is There a Federal Inheritance Tax?

There is no federal inheritance tax in the United States. The federal government imposes an estate tax — but it applies to the estate itself before distributions go out, not to the person who receives the inheritance, and only when the gross estate exceeds the federal exemption threshold.

For 2025 and 2026, the federal estate tax exemption is over $13.6 million per individual. The One Big Beautiful Bill currently moving through Congress proposes to raise that exemption further. For the vast majority of Indiana families settling a loved one's estate, federal estate tax will not apply.

If the gross value of the estate does exceed the federal threshold, the estate — not the individual heirs — files IRS Form 706 and pays the federal estate tax before distributions are made. Heirs then receive their inheritance free of additional tax on that transfer.

What Taxes Does an Indiana Estate Actually Face?

While there is no inheritance tax and rarely a federal estate tax, an Indiana estate does face two other tax obligations that executors and personal representatives must handle correctly.

1. The Decedent's Final Income Tax Returns

The personal representative must file the decedent's final Indiana individual income tax return (IT-40) for the year of their death, reporting all income earned up to the date of death. They must also file the final federal 1040. If the decedent was married, these returns may be filed jointly with the surviving spouse for that tax year.

Any refund belongs to the estate or the surviving spouse, depending on how the return is filed. Any amount owed must be paid from estate funds before other distributions.

2. Estate Income Tax on Estate Earnings

If the estate itself generates income during the settlement process — rental income from a property still in the estate, dividends from investment accounts, interest on bank balances — the estate is a separate tax entity and must file a federal fiduciary income tax return using IRS Form 1041.

To do this, the personal representative needs a Federal Employer Identification Number (FEIN) for the estate, obtained by filing IRS Form SS-4 with the IRS. The Indiana equivalent is filed on Form IT-41.

This tax obligation continues for every year the estate remains open and generating income. Once assets are fully distributed, the estate is closed and no further returns are required.

3. Capital Gains on Inherited Assets

When heirs sell inherited assets — typically real estate or investment accounts — they may owe capital gains tax, but the tax treatment is usually favorable. Under federal tax law, inherited assets receive a stepped-up basis to their fair market value at the date of the decedent's death. This means that any appreciation that occurred during the decedent's lifetime is essentially wiped out for tax purposes.

For example, if a parent purchased a home in Indiana for $80,000 in 1990 and it was worth $280,000 at death, an heir who immediately sells it for $280,000 owes zero capital gains tax. The basis steps up to $280,000 on the date of death. Only appreciation after the date of death creates a taxable gain.

Documenting the stepped-up value at the date of death is important — it requires obtaining appraisals or contemporaneous market valuations for significant assets like real estate and business interests.

If you're settling an estate in Indiana and want a clear, sequenced picture of every obligation — not just taxes, but bank transfers, death certificates, creditor notices, and county-specific filing requirements — the complete toolkit covers the full process in plain language.

Get the complete estate settlement guide for Indiana

Practical Takeaways for Indiana Heirs

A few things to keep in mind as you work through the settlement:

There is no "consent to transfer" step with the Indiana Department of Revenue. Financial institutions that require one are working from outdated procedures. You can politely inform them that the Indiana inheritance tax was repealed and Form IH-14 no longer exists.

The absence of inheritance tax does not mean the estate has no tax obligations. Filing the decedent's final income tax returns and the estate's fiduciary income tax returns (if the estate earns income) are both required. These are different from an inheritance tax — they are standard income taxes that happen to involve a deceased person.

Medicaid estate recovery is not a tax — but it can feel like one. The Indiana Family and Social Services Administration (FSSA) has the authority to recover Medicaid expenses paid on behalf of the decedent from the estate's assets. This is not a tax, and it operates under its own separate rules. Surviving spouses, children under 21, and blind or permanently disabled children are completely exempt from MERP recovery. If FSSA makes a claim, heirs have exactly 90 days to respond and, if eligible, apply for a hardship waiver.

Estate administration costs come first. Even though Indiana has no inheritance tax, court fees, attorney fees, and personal representative compensation are all paid from the estate before distributions to heirs. The Indiana probate filing fee runs approximately $177, with additional sheriff's service fees bringing the total to around $205 to open an estate.

Understanding what you do not owe is just as important as understanding what you do. Indiana's repeal of the inheritance tax removes one major source of anxiety from an already difficult process — and gives families one fewer form to chase down.

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