Indiana Estate Tax Guide — File the Returns, Keep the Inheritance

The Estate Settlement Tax Map

Indiana executors face a strange situation. The state has no inheritance tax and no estate tax. But between the final income tax return, the fiduciary income tax, the capital gains on inherited property, and the Medicaid recovery rules, there are still half a dozen ways to lose thousands of dollars to the wrong filing — or the wrong timing.

The Indiana Department of Revenue publishes the forms. The IRS publishes the instructions. County courts publish their fee schedules. But none of them explain how these pieces connect, which order they go in, or what happens when you file the wrong one first. That gap between having the forms and knowing what to do with them is where most executors make expensive mistakes.

This guide closes that gap. It maps every post-death tax obligation in Indiana — from the final IT-40 return through estate closure — into a single chronological sequence. You follow the timeline. The forms, deadlines, and decision points are built into each step.

What you'll stop worrying about

• Whether Indiana taxes your inheritance — it doesn't. The inheritance tax was repealed for deaths after December 31, 2012, and there is no state estate tax. The guide starts by eliminating this confusion so you can focus on the taxes that actually apply.
• Which forms to file and when — the final IT-40 for income earned before death, the IT-41 for income the estate earns after death, the federal 1041, and Form 706 if the estate exceeds $15 million. Each one has different deadlines, different thresholds, and different consequences for missing them. The guide lays out the exact sequence.
• Whether selling the house triggers a massive tax bill — in most cases, it does not. The step-up in basis resets the property's tax value to its fair market value at the date of death. If you sell at that price, your capital gain is zero. The guide explains the math, shows you how to document the stepped-up value, and helps you avoid panic-selling to a cash investor at 60 cents on the dollar.
• The difference between the house and the IRA — inherited real estate gets the step-up, but inherited retirement accounts do not. Every dollar withdrawn from a traditional IRA is taxed as ordinary income. The guide explains this distinction so you don't confuse the two and end up with a surprise five-figure tax bill.
• Whether the estate generates its own tax obligations — if estate assets earn $600 or more in income (rent, dividends, interest), the executor must file Indiana Form IT-41 at the flat 3.23% rate. Most executors don't know this threshold exists until they receive a penalty notice.
• What Medicaid can take — under the 2026 changes (Senate Bill 275), the FSSA has nine months from date of death to file a recovery claim. The guide covers which assets are vulnerable, which are protected, and how the spousal deferral works.

The Indiana-specific details that generic guides miss

National tax guides explain the federal rules. This guide anchors every instruction to Indiana statutes, Indiana forms, and Indiana agencies:

• The $100,000 Small Estate Affidavit threshold under IC 29-1-8-1 — and the 45-day waiting period before you can use it
• The 5-day vehicle transfer rule at the BMV using State Form 18733 — a separate, faster timeline that most people don't know about
• The $25,000 surviving spouse allowance under IC 29-1-4-1 — paid before general creditors, and available regardless of whether there was a will
• The 60-day County Auditor notification for the homestead deduction — miss this and the county can retroactively strip the deduction for three years plus a 10% penalty
• The IT-41 nonresident beneficiary withholding requirement — if you distribute Indiana-sourced income to an out-of-state heir without withholding, you are personally liable
• The State Comptroller process for uncashed refund checks — banks refuse them, and there's a specific form (POA-20 or IN-1310) to get the money reissued
• The portability election on Form 706 — even estates well under $15 million may benefit from filing to preserve the deceased spouse's unused exclusion for the surviving spouse

Who this is for

You're an executor or personal representative settling an estate in Indiana and you need to know which tax returns to file, in what order, and by when. The estate is probably worth somewhere between $50,000 and $2 million — not large enough to trigger the federal estate tax, but large enough that filing mistakes cost real money.

Or you're a beneficiary who inherited a house, a brokerage account, or a retirement account and you need to understand what you'll owe when you sell or withdraw. You've heard conflicting information about "estate taxes" and "capital gains" and you want a definitive answer grounded in Indiana law.

Or you're a surviving spouse trying to figure out whether the homestead deduction continues, whether Medicaid can come after the house, and how to claim the $25,000 spousal allowance before the deadline passes.

Why not just use free resources?

The Indiana Department of Revenue provides every form for free. The IRS provides every instruction for free. County courts post their fee schedules online. The problem is not access to information — it's that the information is scattered across dozens of disconnected sources, none of which explain how the pieces fit together.

The DOR publishes Form IT-41 but doesn't explain that you need an EIN first, that the federal 1041 must be completed before the state return, or that distributing income to an out-of-state beneficiary without withholding creates personal liability. A national tax site explains the step-up in basis but doesn't mention Indiana's specific homestead deduction trap or the BMV's 5-day vehicle transfer shortcut.

This guide connects all of it into one sequence. For less than a single hour of a probate attorney's time, you get the complete roadmap — and a clear understanding of when you actually need that attorney and when you don't.

What's included

• The full Indiana Final Tax & Estate Tax Guide — 14 chapters covering every tax obligation from the first week through estate closure, with exact forms, deadlines, filing thresholds, and decision points
• Tax Deadline Calendar — every filing deadline on one printable page: IT-40, IT-41, Form 1041, Form 706, creditor windows, and the nine-month absolute bar, with a fillable "Your Date" column
• Form, Fee & Contact Reference Card — every Indiana and federal form by name, number, and agency, plus all filing fees, death certificate costs, and key agency contact information
• Step-Up in Basis Valuation Log — fillable worksheet to document date-of-death fair market values for real estate, stocks, business interests, and other inherited assets
• Financial Records Collection Checklist — 42-item checklist covering every document you need to gather before filing: tax returns, brokerage statements, insurance policies, retirement accounts, debts, and property records
• Small Estate Qualification Worksheet — fillable worksheet to calculate whether the estate falls under the $100,000 threshold for Indiana's Small Estate Affidavit under IC 29-1-8-1
• Estate Income Tracker — fillable log to track estate income toward the $600 IT-41 filing threshold, with the 3.23% rate, deadline calculation, and nonresident withholding rules

— less than one hour of a probate attorney's time

The average Indiana probate attorney charges $307 per hour. Most executors spend their first consultation just learning which forms exist and which deadlines apply — information this guide delivers in the first three chapters. Use the guide to handle the routine filings yourself, and save professional consultations for the situations that genuinely require them.

The free checklist gives you the 18 most critical action items. The full guide gives you the complete system — every chapter, every form, every deadline, every decision point.