Texas Estate Tax and Inheritance Tax: What You Actually Owe

If someone just died and you're worried about Texas estate tax or Texas inheritance tax, here's the most important thing to know: there isn't one. Texas has no state estate tax and no state inheritance tax. The legislature repealed the state inheritance tax in 2015, and Texas does not levy an independent state estate tax. For the vast majority of Texas families, that eliminates one entire category of tax obligation.

That said, you're not finished with taxes. Federal estate tax applies to large estates, the decedent's final federal income tax return still has to be filed, and if the decedent owned a business, franchise taxes require immediate attention. What you owe depends on the estate's size and composition—not on Texas law.

Texas Has No State Estate Tax or Inheritance Tax

This bears repeating because many people assume they'll face a Texas death tax similar to what estates pay in Oregon, Massachusetts, or Maryland. They won't.

Texas has not had a state inheritance tax since 2015. Before repeal, it was structured as a "pick-up tax" that simply captured whatever the federal estate tax credit allowed—meaning Texas collected nothing independently; it just claimed a share of what federal law already permitted. When Congress eliminated the federal credit in 2001, Texas's inheritance tax became a zero-dollar liability, and the legislature formally repealed the statute in 2015 to clean up the books.

Texas also has no separate estate tax statute. Some community property states (notably Oregon and Washington) impose their own estate taxes with lower exemptions than the federal system. Texas does not.

This means:

• Heirs receive their inheritance free of any Texas state death tax, regardless of the estate's size
• There is no Texas estate tax return to file
• There is no Texas Department of Revenue review of estate distributions
• No Texas tax lien attaches to estate property at death

Federal Estate Tax: Who Owes It

Federal estate tax does exist and applies to Texas estates, but the exemption is high enough that most families never encounter it.

For deaths in 2025, the federal basic exclusion amount is $13.99 million per person. For deaths in 2026, it rises to an estimated $15.0 million. An estate must exceed these thresholds to owe federal estate tax at all.

Practically speaking, fewer than 1% of estates nationally trigger a federal estate tax liability. For most Texas executors, federal estate tax is not something they'll pay—but there are two situations where filing IRS Form 706 matters even when no tax is owed:

Portability election: A surviving spouse can "inherit" the deceased spouse's unused federal exemption amount, effectively doubling the exemption available for the second estate. To claim this benefit, a timely Form 706 must be filed within nine months of death (with a six-month extension available). Under IRS Revenue Procedure 2022-32, estates that fall below the filing threshold have until the fifth anniversary of the decedent's death to file a late portability election. If there's significant wealth or appreciated property in the surviving spouse's future estate, this election is worth filing even when no tax is owed.

The 2025 sunset: The current $13.99 million exemption is scheduled to drop roughly in half after 2025 under the Tax Cuts and Jobs Act's sunset provision, unless Congress acts. This means wealthy Texas families—particularly those with highly appreciated real estate, mineral rights, or business interests—may want estate planning advice before the exemption shrinks.

The Final Federal Income Tax Return

Every executor of a Texas estate must address the decedent's final federal income tax return (IRS Form 1040). This covers income earned from January 1 through the date of death. The deadline is April 15 of the year following death—the same as for a living taxpayer.

Because Texas has no state income tax, there is no corresponding state final individual return. The executor files one return at the federal level and that's it for individual income tax.

If the estate generates income during administration—rental income, dividends, interest from estate bank accounts—the estate itself becomes a separate taxpayer. Income exceeding $600 requires the executor to file a federal fiduciary income tax return on IRS Form 1041. Beneficiaries receiving distributions of that income get Schedule K-1 forms showing their share. Again, no Texas-level fiduciary income tax applies.

Texas Property Taxes After Death

While the state imposes no death tax, county-level property taxes don't stop at death—and they can create serious problems for executors if not addressed quickly.

Texas Tax Code Section 33.06 allows homeowners aged 65 or older, or those who are legally disabled, to defer property tax payments on their homestead. This deferral is common and often runs for years, accumulating deferred taxes plus 5% annual interest. At death, the deferral terminates. The estate must pay the accumulated balance to avoid foreclosure.

If the decedent owed several years of deferred property taxes, the county tax assessor-collector becomes a priority creditor of the estate. The home cannot be freely transferred to heirs until this liability is cleared. Executors discovering a deferred tax balance should contact the county tax office immediately and factor this into the estate's cash-flow plan.

A surviving spouse between 55 and 65 may be able to maintain the deferral—this requires filing with the local appraisal district and is not automatic.

Community Property and the Double Step-Up in Basis

Texas is a community property state, and this creates an extraordinarily favorable tax result for surviving spouses who inherit appreciated assets.

Under the standard federal rule (IRC Section 1014(a)), property inherited from a decedent receives a "stepped-up" cost basis equal to its fair market value on the date of death. This erases capital gains that built up during the owner's lifetime.

Texas adds a layer on top of this. Under IRC Section 1014(b)(6), the special community property rule, the entire community property asset gets stepped up—not just the decedent's half. In common law states, only the decedent's 50% interest receives the step-up; the surviving spouse's half retains its original cost basis. In Texas and other community property states, both halves step up simultaneously.

This matters enormously when a couple holds highly appreciated assets—a family ranch, investment real estate, a taxable brokerage account built over decades. After the first spouse's death, the surviving spouse can sell the entire asset and owe zero capital gains tax on any appreciation that occurred during the marriage. The entire gain is wiped out by the double step-up.

To capture this benefit, the assets must be properly classified as community property. Separate property—assets owned before marriage or received as gifts and inheritances during marriage—does not benefit from the double step-up on the surviving spouse's half. Executors dealing with mixed-character estates (some community, some separate) often benefit from working with a CPA to document basis correctly.

Texas Franchise Tax If the Decedent Owned a Business

If the decedent owned a business entity registered in Texas—an LLC, limited partnership, or corporation—the executor faces a separate obligation that has a hard deadline.

Texas law requires a final franchise tax report to be filed within 60 days of the date the entity ceases operations. This report must be filed with the Texas Comptroller before the entity can be legally terminated with the Texas Secretary of State. Failure to file leaves the entity technically active and accruing ongoing franchise tax liabilities, which become the estate's responsibility.

After filing and paying any balance, the executor requests Form 05-305 (Certificate of Account Status) from the Comptroller, then files termination documents with the Secretary of State through the SOSDirect portal. This sequence must happen in order—the SOS will not process termination without the Comptroller's clearance.

For more on the franchise tax forms and sequence, see /blog/texas-franchise-tax-final-report.

What Executors Should Do First

Given that Texas imposes no state death tax, the immediate priority for most Texas executors is:

1. Secure certified death certificates—order 10 to 15 copies from the Texas Department of State Health Services (DSHS). The first copy costs $20, and additional copies are $3 each when ordered simultaneously.

2. Determine whether the estate requires probate or qualifies for a simplified process (Small Estate Affidavit for intestate estates under $75,000 in non-exempt assets, or Muniment of Title for will-only estates with no unsecured debts).

3. Check for deferred property taxes at the county level before making any promises about asset distributions.

4. Assess whether Form 706 portability election is worth filing even if no estate tax is owed.

5. Evaluate the step-up basis on community property assets before any beneficiaries sell inherited investments or real estate.

The Texas Final Tax & Estate Tax Guide at bereavementstartguide.com/us/texas/estate-tax/ walks through each of these steps in detail, with the specific forms, deadlines, and sequences that Texas law requires.

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