An inheritance check generally does not count as taxable income for federal income tax purposes, according to the IRS. Inheritances are typically considered a transfer of assets, not income. However, any income the inheritance generates after you receive it (such as interest, dividends, or rental income) is taxable.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government.
You can typically inherit a large amount without federal taxes because the tax applies to the deceased's estate, not the recipient, and the exemption is very high: $13.99 million in 2025 and $15 million in 2026 per person, meaning most inheritances fall below this threshold. The key is that the estate's total value must exceed these limits for any tax to be owed by the estate. Inheritances themselves (cash, property) are generally not income, but earnings on them (like interest/dividends) or pre-tax retirement funds (like IRAs) are taxable.
Generally, cash you inherit is not taxable income. Your income tax position changes only when the inheritance starts to earn money after you receive it.
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
You can deposit a large cash inheritance into a savings account, either by check or by wire transfer to your bank.
Best of all, with most inheritances, you won't owe any taxes. You won't even have to report them to the IRS. There is one important exception, however: If you inherit an individual retirement account (IRA), any taxes on IRA distributions that would have been owed by the deceased will now be owed by you.
Transfer assets into a trust
Because those assets don't legally belong to the person who set up the trust, they aren't subject to estate or inheritance taxes when that person passes away. Setting up a trust also has other financial benefits, such as helping the estate avoid probate.
How much is Inheritance Tax? There is normally no tax to be paid if: the value of your estate is below the £325,000 threshold known as the nil rate band. you leave everything above the threshold to your spouse or civil partner, or.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax ranges from 18% to 40% and generally only applies to assets over $13.99 million in 2025 or $15 million in 2026.
While state laws differ for inheritance taxes, an inheritance must exceed a certain threshold to be considered taxable. For federal estate taxes as of 2024, if the total estate is under $13.61 million for an individual or $27.22 million for a married couple, there's no need to worry about estate taxes.
Typically, you will receive Form 1099-S reporting the sale of an inherited property which will show your sales proceeds. You will also need to determine your basis in the property to account for the sale correctly.
You can typically inherit a very large amount from your parents before hitting federal estate tax thresholds, which are around $15 million per individual in 2026, meaning most heirs receive tax-free inheritances because estates rarely exceed this limit; however, some states have their own estate or inheritance taxes, and income from inherited assets (like IRAs or rental income) is usually taxable, according to this U.S. Bank article, this Fidelity article, this Domain Money article, and this Tax Foundation article.
Yes, you can likely give your daughter $50,000 tax-free by using your annual gift exclusion and lifetime exemption, but you'll need to file Form 709 with the IRS to report the gift exceeding the annual limit ($19,000 in 2024/2025). The $50,000 gift reduces your large lifetime exemption (over $13 million in 2024/2025), meaning you won't pay tax on it unless your total lifetime gifts exceed that huge amount; your daughter never pays gift tax on the money.
Yes, you can gift your son $100,000, but since it's over the 2025 annual exclusion of $19,000, you'll need to file a gift tax return (Form 709), though you likely won't owe taxes unless you've already used up your large lifetime exemption (over $13.99 million in 2025). Your son pays no tax on the gift, but you, as the giver, must report the amount exceeding the annual limit, which counts against your lifetime exemption.
Sometimes, what to do with an inheritance is as much about what you should not do with your inheritance money.
Charity exemption
Like the spousal exemption, assets passing to charity on death are exempt from inheritance tax. As such, if an entire estate passes to charity, there will be no inheritance tax due.
CGT doesn't usually apply at the time you inherit the dwelling, however it will apply when you later sell or dispose of the dwelling, unless an exemption applies. if you dispose of the inherited property within 2 years (or the within an extension period) of the deceased person's death.
Ideas for what to do with your inheritance