Inheritance Tax by State: Which States Tax What You Inherit

People confuse inheritance tax with estate tax constantly, and the distinction matters. Estate tax is generally imposed on the estate; inheritance tax generally depends on the recipient and their relationship to the decedent. Five states still impose an inheritance tax, but if you're inheriting from someone in one of them, you need to know the rules.

The Five Inheritance Tax States

As of 2026, these states charge inheritance tax:

Kentucky — Class A beneficiaries (spouse, children, grandchildren, parents, siblings) are fully exempt. Class B (including nieces, nephews, aunts, uncles, and some other relatives) receive a $1,000 exemption and pay 4–16%. Class C (everyone else) receive a $500 exemption and pay 6–16%.

Maryland — the only state that imposes both an estate tax and an inheritance tax. Spouses, parents, grandparents, lineal descendants, stepchildren, stepparents, siblings, and certain other recipients are exempt from inheritance tax. Other individuals generally pay 10%.

Nebraska — siblings and lineal descendants pay 1% on amounts over $100,000. Remote relatives pay 11% on amounts over $40,000; nonrelatives pay 15% on amounts over $25,000.

New Jersey — Class A beneficiaries (spouse, children, parents, grandparents) are exempt. Class D beneficiaries (friends and other non-Class A or C recipients) pay 15% on the first $700,000 and 16% above that; transfers under $500 are not taxed.

Pennsylvania — one of the broadest inheritance taxes. Transfers to lineal descendants are taxed at 4.5%. Siblings pay 12%. Other taxable transfers generally pay 15%; surviving spouses and qualifying charitable transfers are exempt.

Iowa does not impose inheritance tax on estates of people who die on or after January 1, 2025.

Inheritance Tax vs. Estate Tax

More than 20 states impose a separate estate or inheritance tax. For U.S. citizens or residents who die in 2026, the federal estate tax filing threshold is $15 million; state estate tax thresholds can be lower, including $1 million in Oregon and $2 million in Massachusetts for deaths on or after January 1, 2023.

For executors managing estates with property in multiple states, this layering gets complicated. The state where real property is located determines tax liability for that specific asset — not the state where the decedent lived or where the executor resides.

What This Means for Out-of-State Executors

If you're settling an estate that includes property in a state with inheritance tax, the tax generally depends on each beneficiary's share and relationship to the decedent. State rules determine who must file, withhold, and pay, so check the state's instructions before distributing taxable property.

When real estate sits in one state and the decedent lived in another, both states' tax rules may apply to different portions of the estate. This is one of the situations where a tax professional familiar with multi-state estates pays for themselves.

For a structured approach to managing multi-state estate obligations, the Long-Distance Estate Settlement toolkit includes a state-by-state compliance tracker and tax filing timeline.

Key Takeaway

Most states don't tax inherited assets at all. If you're inheriting from someone in Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, check the exemption thresholds for your specific relationship to the decedent. Spouses and direct descendants are exempt or taxed at minimal rates in every state that has an inheritance tax.