Virginia Inheritance Tax

You have just learned that a family member left you an inheritance -- a bank account, a share of a house in Northern Virginia, maybe a retirement account. The grief is still fresh, but a practical question cuts through: how much of this is the state going to take?

The direct answer brings genuine relief. Virginia does not impose an inheritance tax. The Commonwealth has never assessed a general inheritance tax on beneficiaries, and that remains true in 2026. Unlike neighboring states such as Pennsylvania and Maryland, Virginia does not tax the assets you receive simply because you received them.

But "no inheritance tax" is not the same as "no tax consequences from inheriting." Several specific types of inherited assets do trigger real tax obligations under both Virginia and federal law, and misunderstanding where the tax-free zone ends has cost Virginia families thousands of dollars in avoidable capital gains and income taxes. This guide separates the assets that truly pass tax-free from the ones that carry hidden tax obligations.

Virginia Has No Inheritance Tax -- Here Is What That Means

An inheritance tax is a tax assessed on the person who receives assets from a deceased individual. The tax is typically calculated based on the value of what the beneficiary receives and, in states that impose it, often varies based on the beneficiary's relationship to the decedent. Close relatives like spouses and children may pay lower rates or be exempt, while more distant relatives and unrelated individuals pay higher rates.

Virginia does not have this tax. Period. There is no Virginia inheritance tax return to file, no inheritance tax rate schedule to consult, and no tax bill from the Commonwealth based on the value of what you inherit. This applies regardless of:

• How much you inherit
• Your relationship to the person who died
• Whether you are a Virginia resident or live out of state
• Whether the inheritance comes through a will, intestate succession, or a trust

This has been the law for as long as modern Virginia tax law has existed. Virginia also repealed its state estate tax effective July 1, 2007, making the Commonwealth one of the most favorable states in the country for wealth transfer.

The Difference Between Inheritance Tax and Estate Tax

The confusion between these two taxes causes enormous anxiety for families, and the terms are frequently used interchangeably in casual conversation despite meaning different things.

An estate tax is paid by the estate itself before assets are distributed. The federal government imposes one on estates exceeding $15,000,000 (the 2026 exemption). Virginia does not impose a state estate tax.

An inheritance tax is paid by the individual beneficiary after receiving assets. Virginia does not impose an inheritance tax.

The only state-level tax assessed during estate administration is the Virginia probate tax -- a one-time assessment of 10 cents per $100 of probate estate value, paid by the estate at the time the executor qualifies. This is a probate administrative fee, not a tax on inheritance.

Assets That Pass Completely Tax-Free to Virginia Beneficiaries

Several categories of inherited assets arrive in the beneficiary's hands with zero federal or state tax liability:

Life insurance proceeds. If you are named as the beneficiary on a life insurance policy, the death benefit is not taxable income. You receive the full payout without owing federal or Virginia income tax. The only exception is if the policy was transferred to you for value (the "transfer-for-value rule"), which is uncommon in family situations.

Inherited principal from bank accounts, brokerage accounts, and real estate. The principal value of what you inherit is not income. If a parent leaves you a savings account with $80,000, you do not owe income tax on the $80,000. It is a transfer of wealth, not earned income.

Roth IRA distributions. If the decedent held a Roth IRA and the account was established at least five years before death, distributions to the beneficiary are completely tax-free. The decedent already paid income tax on the contributions, and qualified growth is excluded from taxation.

Assets receiving the step-up in basis (if sold at or near the stepped-up value). Most inherited assets receive a step-up in cost basis to their fair market value on the date of death. If you sell the asset at or near that value, the capital gain is zero or negligible.

Where Beneficiaries Do Owe Taxes on Inherited Assets

Here is where the "no inheritance tax" fact can create a false sense of security. While Virginia does not tax the act of inheriting, certain inherited assets carry built-in tax obligations under federal and Virginia income tax law.

Traditional IRA and 401(k) Distributions

Traditional retirement accounts represent the largest hidden tax exposure for Virginia beneficiaries. The decedent contributed pre-tax dollars to these accounts, and the tax was deferred -- not eliminated. When you, as the beneficiary, take distributions, those distributions are taxed as ordinary income on both your federal return and your Virginia return.

Under the SECURE Act, most non-spouse beneficiaries must fully distribute an inherited traditional IRA within 10 years of the account owner's death. If the inherited IRA holds $400,000, you must withdraw the entire balance within a decade, and every dollar withdrawn is added to your taxable income for that year.

The tax impact depends on your income bracket and how you time the distributions. A Virginia beneficiary in the 22% federal bracket and the 5.75% Virginia bracket would face a combined marginal rate of roughly 27.75% on each withdrawal. Spreading distributions across all 10 years generally produces a lower total tax bill than waiting until year 10 and taking one massive taxable withdrawal.

Surviving spouses have a more favorable option: they can roll the inherited IRA into their own IRA and delay required minimum distributions until they reach the standard RMD age.

Capital Gains on Inherited Real Estate

Virginia real estate is the most common high-value inherited asset, and the step-up in basis is the tax provision that matters most here. When you inherit a home, its cost basis is reset to its fair market value on the date of death. If you sell shortly after at the same value, there is no capital gain.

But if you hold the property and it appreciates after the date of death, you owe capital gains tax on the post-death appreciation. If a home was worth $400,000 at the date of death and you sell it three years later for $450,000, you owe capital gains tax on the $50,000 gain. Virginia taxes capital gains at ordinary income tax rates (up to 5.75%).

This is particularly relevant in rapidly appreciating Virginia markets like Northern Virginia, Richmond, and Hampton Roads. Holding an inherited home for several years while the market rises creates a growing tax liability that did not exist at the time of death.

To establish the stepped-up basis, you need a date-of-death appraisal. In Virginia, the Commissioner of Accounts requires the executor to file an inventory (Form CC-1670) within four months of qualification, which includes real estate valuations. That inventory valuation serves as the documentary evidence for your stepped-up basis.

Estate Income Passed to Beneficiaries via Schedule K-1

If the estate earns income during administration -- interest from bank accounts, dividends from investments, rental income from real property -- and distributes that income to beneficiaries rather than retaining it at the estate level, the tax burden shifts to the beneficiaries.

You will receive a Schedule K-1 from the estate's federal fiduciary return (IRS Form 1041), showing your share of distributed income. This income must be reported on both your federal return and your Virginia return (Form 760). Many beneficiaries are surprised by this K-1 because they did not realize the estate was generating taxable income during the months or years of administration.

The K-1 income is not a tax on your inheritance. It is income tax on earnings that the estate passed through to you as a distribution. But the practical effect is the same: you owe tax that you might not have anticipated.

Border-State Inheritance Tax: A Trap for Virginia Families

Virginia has no inheritance tax, but if the person who died lived in a state that does -- such as Pennsylvania (4.5% for children), Maryland (10% for non-exempt beneficiaries), or Kentucky (4% to 16% for distant relatives) -- you may owe that state's tax regardless of living in Virginia. Virginia cannot shield you from another state's jurisdiction over the decedent's estate. If the decedent was domiciled outside Virginia, check that state's rules before assuming you owe nothing.

What You Need to Do as a Virginia Beneficiary

The absence of a Virginia inheritance tax simplifies the picture considerably, but it does not eliminate all action items. Here is a practical summary:

1. Confirm the decedent's state of domicile. If they lived in a state with an inheritance tax, you may owe that state's tax.
2. Identify any inherited traditional retirement accounts. These carry deferred income tax that you will owe upon distribution. Plan the timing of withdrawals to minimize the tax impact.
3. Get the date-of-death appraisal for inherited real estate. This establishes your stepped-up basis and protects you from overpaying capital gains tax if you sell later.
4. Watch for a Schedule K-1. If the estate earned income during administration and distributed it to you, you will receive a K-1 and must report that income on your returns.
5. Do not confuse "no inheritance tax" with "no taxes ever." The inheritance itself is not taxed, but certain inherited assets generate taxable events when you use, sell, or withdraw from them.

For a complete breakdown of every tax obligation facing Virginia executors and beneficiaries -- including the probate tax calculation, fiduciary income tax deadlines, and step-up in basis documentation -- the Virginia Final Tax & Estate Tax Guide provides the full checklist organized around Virginia's Commissioner of Accounts timeline.

The Bottom Line

Virginia is one of the best states in the country to inherit assets. No state estate tax, no inheritance tax, and a probate tax that amounts to a fraction of a percent. The vast majority of Virginia beneficiaries will receive their inheritance without any state-level tax reduction whatsoever.

The obligations that do exist -- income tax on traditional retirement account distributions, capital gains on appreciated inherited property, and K-1 income from estate earnings -- are income tax obligations, not inheritance taxes. Understanding this distinction turns the question from "how much will Virginia take?" to "how do I manage the income tax on specific assets I inherited?" The Virginia Final Tax & Estate Tax Guide walks you through each one.

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