Virginia Estate Tax

You just qualified as executor at the circuit court clerk's office. The probate tax return is filed, the bond is posted, and now you are staring at a four-month inventory deadline from the Commissioner of Accounts. Somewhere in the back of your mind, a question is gnawing: how much of this estate is going to disappear to estate taxes before anything reaches the family?

The short answer brings real relief. Virginia does not impose a state-level estate tax. The Commonwealth repealed it effective July 1, 2007, and it has not come back. But that single fact, while genuinely important, is only the beginning of the story. Virginia executors still face a state probate tax assessed at qualification, an ongoing fiduciary income tax obligation if the estate earns any income, and, for estates above a very high federal threshold, the federal estate tax. Understanding which of these actually applies to the estate you are managing is the difference between unnecessary panic and informed administration.

Virginia Repealed Its Estate Tax in 2007

Prior to July 1, 2007, Virginia levied a state estate tax that was calculated as a "pick-up tax" -- it equaled the credit for state death taxes allowed on the federal estate tax return. When Congress phased out that federal credit, the Virginia estate tax lost its mathematical basis and was effectively repealed.

This means that for any person who died after July 1, 2007, the Commonwealth of Virginia assesses zero state estate tax regardless of the size of the estate. There is no Virginia estate tax return to file, no state estate tax rate to calculate, and no state estate tax lien to clear before distributing assets.

This applies equally to resident and nonresident decedents who own property in Virginia. The repeal was complete, not partial.

There is one narrow historical exception. Certain remainder interests established before the repeal may still be subject to a legacy inheritance tax under the Department of Taxation's Public Document 15-93. Unless you are dealing with a trust structure created before 2007 with unusual remainder provisions, this exception will not apply.

The Taxes Virginia Executors Actually Face

The absence of a state estate tax does not mean the estate has no tax obligations. Three distinct tax regimes apply to most Virginia estates, and confusing them is one of the most common mistakes executors make.

The Virginia Probate Tax

Virginia generates revenue from estates through a probate tax imposed at the moment of qualification. This is not an estate tax in the traditional sense -- it is a one-time assessment based on the value of assets passing through probate.

The state probate tax rate is 10 cents per $100 of the estate's value. The tax only triggers if the estate exceeds $15,000, but once that threshold is crossed, the rate applies to the entire value, including the first $15,000. Local governments may add an additional local probate tax equal to one-third of the state tax (approximately 3.33 cents per $100).

The probate tax applies only to probate assets. Property that passes via right of survivorship, payable-on-death designations, transfer-on-death deeds, and life insurance with named beneficiaries is excluded from the calculation.

For a probate estate valued at $500,000, the state probate tax would be approximately $500, with a potential local surcharge of roughly $167. These are modest amounts relative to the estate's value, but they must be paid before the clerk will issue the certificate of qualification.

If you overestimate the estate's value on the Probate Tax Return (Form CC-1651) and overpay, the circuit court cannot issue a refund directly. You must submit a written request to the Virginia Department of Taxation's Special Taxes and Services division, accompanied by the approved Commissioner of Accounts inventory. Refunds under $25 are not issued.

The Decedent's Final Income Tax Return

The executor is legally responsible for filing the decedent's final Virginia Individual Income Tax Return (Form 760) for the portion of the calendar year the decedent was alive. The deadline is May 1 of the year following death, aligning with Virginia's standard individual filing date.

If the final return produces a refund, the Department of Taxation will issue a check payable to the estate. If someone other than a surviving spouse or court-appointed personal representative needs to claim the refund, they must file a paper return with a copy of the death certificate and IRS Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer) attached.

If the decedent was married, the final return can be filed jointly with the surviving spouse, which often produces a more favorable tax result.

The Estate's Fiduciary Income Tax (Form 770)

Once the estate is formally opened, it becomes a separate taxable entity. If the estate generates any Virginia taxable income -- from interest on bank accounts, rental income from real property, dividends from investments, or gains from asset sales -- the executor must file a Virginia Fiduciary Income Tax Return (Form 770).

The filing threshold is triggered if the estate has any Virginia taxable income or if a federal fiduciary return (IRS Form 1041) is required.

Virginia grants an automatic six-month extension for filing Form 770, but this extension applies only to the paperwork, not to payment. At least 90% of the final tax liability must be paid by the original due date to avoid penalties. Miss that threshold, and the estate faces a 2% per month extension penalty (capped at 12%). File more than six months late, and the penalty escalates to 6% per month (capped at 30%).

Estates are exempt from estimated tax payments for taxable years ending within two years of the decedent's death. After that grace period, estimated payments are required if the expected liability reaches $1,000 or more.

The Federal Estate Tax and the 2026 Exemption

While Virginia itself imposes no estate tax, Virginia residents are still subject to the federal estate tax administered by the IRS. The federal estate tax applies to the transfer of the "gross estate" -- cash, real estate, life insurance proceeds, retirement accounts, trusts, annuities, and business interests, all valued at fair market value on the date of death.

For 2026, the federal estate tax exemption stands at $15,000,000 per individual. This exemption was made permanent at this level by the One Big Beautiful Bill Act, which prevented the scheduled sunset that would have cut the exemption roughly in half. Married couples can effectively shield up to $30,000,000 through portability -- the surviving spouse elects to use the deceased spouse's unused exemption by filing IRS Form 706 within nine months of death, even if no federal estate tax is actually owed.

The practical reality is that fewer than 0.1% of Virginia estates will exceed the $15 million threshold. For the vast majority of families, the federal estate tax is simply not a factor. But if the estate is large enough to potentially trigger it, the executor must file Form 706 within nine months of death (with a possible six-month extension) and should retain a specialized estate tax attorney or CPA immediately.

Even for estates well below the threshold, filing Form 706 for the sole purpose of claiming portability can be a valuable planning move for the surviving spouse. The portability election preserves the deceased spouse's unused exemption for future use, protecting against the possibility that the surviving spouse's own estate could grow over time.

The Step-Up in Basis: The Tax Benefit Most Families Actually Use

For estates below the $15 million federal threshold -- which is nearly all Virginia estates -- the most consequential tax provision is the step-up in basis. When property is inherited, its cost basis is adjusted to the fair market value as of the date of death. This eliminates capital gains tax on all appreciation that occurred during the decedent's lifetime.

If a parent purchased a home in Virginia for $150,000 in 1995 and it is worth $450,000 at the time of death, the heirs inherit the home with a stepped-up basis of $450,000. If they sell it shortly after for $455,000, they owe capital gains tax only on the $5,000 of post-death appreciation, not on the $300,000 of lifetime appreciation.

The step-up in basis is the single most valuable tax benefit for the typical Virginia estate. Documenting the date-of-death value through a formal appraisal -- which the Commissioner of Accounts will require for the inventory anyway -- creates the evidentiary record needed to defend the stepped-up basis if the IRS ever questions it.

A Simplified Tax Obligations Map for Virginia Executors

For estates that fall in the middle -- below the federal threshold but complex enough to create anxiety -- a structured guide that sequences the tax obligations alongside the Commissioner of Accounts deadlines can prevent costly mistakes without requiring thousands in professional fees. The Virginia Final Tax & Estate Tax Guide walks executors through every tax obligation, deadline, and form in the order they actually arise during administration.

The Bottom Line

Virginia is one of the most favorable states in the country for estate taxation. No state estate tax, no state inheritance tax, and a federal exemption of $15 million that shields virtually all families. But "no estate tax" does not mean "no tax obligations." The probate tax, the final income tax return, and the fiduciary income tax still require attention, timely filing, and accurate calculation.

The executor who understands which taxes actually apply -- and which do not -- avoids both the unnecessary anxiety of imagining a massive tax bill and the very real penalties that come from missing the obligations that do exist. If you are settling an estate in Virginia, the Virginia Final Tax & Estate Tax Guide provides the complete checklist and deadline calendar to keep you on track.

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