Multi-State Estate Tax: What Executors Need to Know

The Multi-State Tax Problem

Federal estate tax gets all the attention, but for a decedent who dies in 2026, the basic exclusion amount is $15 million. Most families never touch it. State-level estate and inheritance taxes are a different story — they hit much lower thresholds and they can stack up when the deceased owned property across state lines.

As executor, you're responsible for ensuring required returns are filed on time. Errors can result in penalties, interest, or fiduciary liability depending on the circumstances. When multiple states are involved, the complexity multiplies.

Which States Tax Estates

About a dozen states plus the District of Columbia impose their own estate tax, with exemption thresholds far below the federal level. Oregon's threshold is $1 million. Massachusetts's filing threshold is $2 million for deaths on or after January 1, 2023. For deaths in 2026, New York's basic exclusion amount is $7.35 million and its estate tax has a "cliff" — an estate exceeding 105% of the exclusion amount can lose the exclusion and be taxed from dollar one.

Five states impose inheritance taxes instead of (or in addition to) estate taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa repealed its inheritance tax for deaths on or after January 1, 2025. Inheritance taxes are paid by the person receiving the assets, not the estate, and rates vary by the beneficiary's relationship to the deceased. Spouses are typically exempt. Children and parents usually pay lower rates (0%–5%). Siblings, nieces, nephews, and unrelated beneficiaries can face rates up to 16%.

Maryland is the only state that imposes both an estate tax and an inheritance tax.

How Property Location Creates Multi-State Exposure

State estate taxes may apply to real property located within a state's borders even when the decedent lived elsewhere; the decedent's domicile can also determine tax treatment for the rest of the estate. A Florida resident who owns a vacation home in Massachusetts may have to file a Massachusetts estate tax return if the gross estate plus adjusted taxable gifts exceeds the state's $2 million threshold. For a nonresident decedent, Massachusetts calculates tax using Massachusetts real and tangible property and applicable deductions and credits; the current state instructions govern the calculation.

This means your parent could have lived in a tax-free state their entire life, but real property in an estate-tax state can expose the estate to tax there if that state's rules apply.

The most common multi-state scenarios:

• Vacation homes in states with estate taxes (Connecticut, Maine, Vermont, Hawaii, Washington state)
• Rental properties in estate-tax jurisdictions
• Business interests tied to a physical location in another state
• Farmland or timberland inherited across state lines

The Double Taxation Risk

When two states both claim the right to tax the same assets, you can end up paying twice. This happens most often with intangible assets (bank accounts, investment portfolios, business interests) when the deceased maintained a domicile connection to more than one state.

States determine domicile based on factors like where the deceased voted, held a driver's license, kept their primary residence, and spent the majority of their time. If the deceased split time between two states — say, New York and Florida — both states may claim them as a domiciliary and attempt to tax the entire estate.

Protecting against this requires clear domicile documentation: the deceased should have had their voter registration, driver's license, and primary bank accounts all in one state, with tax returns filed as a resident of that state. If the documentation is ambiguous, you may end up negotiating with both states or seeking a ruling from one of them — a process that can delay estate closure by months.

Federal Tax Returns You're Responsible For

Regardless of state tax complexity, you must file:

Form 1040 — the decedent's final personal income tax return, covering January 1 through the date of death. Due by April 15 of the following year.

Form 1041 — the estate's fiduciary income tax return, generally required if the estate generates at least $600 in gross income during administration. This covers income from estate assets after the date of death — rental income, investment dividends, interest on bank accounts. Due by the 15th day of the fourth month after the estate's fiscal year ends.

Form 706 — the federal estate tax return, generally required if the decedent's gross estate, adjusted taxable gifts, and specific exemption exceed the basic exclusion amount for the year of death ($15 million for 2026). Due 9 months after the date of death, with a 6-month extension available via Form 4768.

Form 56 — formally notifies the IRS that you are the fiduciary authorized to act on the decedent's behalf. File this immediately upon qualifying as executor.

What Multi-State Filing Actually Looks Like

If the estate owes taxes in more than one state, you may need to file a separate state estate tax return in each jurisdiction. Each state has its own filing rules and deadlines; confirm the current instructions for each state where the estate may have a filing obligation.

Some states allow a credit for estate taxes paid to another state on the same assets, but availability and calculations vary. Do not assume a credit will eliminate double taxation on real property. This is where a CPA with multi-state estate experience earns their fee.

Hire a CPA in the domiciliary state who has experience with multi-jurisdictional filings. If the estate is large enough to trigger estate taxes in multiple states, the CPA fee ($2,000–$10,000 depending on complexity) prevents mistakes that carry far larger penalties.

The Long-Distance Estate Settlement guide includes a tax compliance matrix and filing tracker to help remote executors manage overlapping deadlines across states.