In most U.S. states with inheritance taxes, beneficiaries who do not have to pay include surviving spouses. Other close relatives, such as children, stepchildren, grandchildren, and parents, are often exempt or taxed at lower rates. Furthermore, if the total value of the inheritance falls below a state-specific threshold (e.g., $25,000 in NJ), no tax is typically due.
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.
Fortunately, in California, there is neither an estate nor an inheritance tax, and the federal estate tax clicks in only if the value of the estate surpasses $12.92 million in 2023 (it rises each year according to inflation). The IRS likewise does not treat your inheritance as income.
The best way to avoid the inheritance tax is to manage assets before death. To eliminate or limit the amount of inheritance tax beneficiaries might have to pay, consider: Giving away some of your assets to potential beneficiaries before death. Each year, you can gift a certain amount to each person tax-free.
In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate. It's a progressive tax, just like the federal income tax system. This means that the larger the estate, the higher the tax rate it is subject to.
The simplest way of avoiding Inheritance Tax is via the spouse or civil partner exemption rule. This covers couples who are either legally married or in a civil partnership. It also covers partners who are separated, but not those who are divorced (or had their civil partnership dissolved) at the time of death.
You can typically inherit a very large amount from your parents without paying federal tax, as the federal estate tax exemption is around $15 million per person for 2026, meaning only estates larger than that pay tax, not you directly. While you generally don't pay income tax on inheritances (except for pre-tax retirement funds like IRAs/401(k)s, which are taxed as income when withdrawn), some states have their own estate or inheritance taxes with much lower thresholds, affecting a smaller portion of wealth.
Overview. Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who's died. There's normally no Inheritance Tax to pay if either: the value of your estate is below the £325,000 threshold.
More distant relatives from the deceased individual, like nieces, nephews and cousins, may be subject to the inheritance tax, and most non-relatives will have to pay the tax.
Step-Up in Basis for Inherited Assets
One tax advantage of leaving assets after death is the step-up in basis. This provision allows heirs to inherit assets at their fair market value at the time of death, effectively resetting the capital gains tax to zero for any appreciation during the decedent's lifetime.
For example, surviving spouses, parents, children, and grandchildren are often exempt from paying inheritance taxes, while siblings, nieces, or nephews might need to pay. But those rules vary by state. In some states, only a surviving spouse is exempt.
When one spouse dies, they can leave their entire estate to their surviving partner completely free of inheritance tax, regardless of the value. This occurs because transfers between spouses and civil partners qualify for a 100% exemption from IHT. Example: Michael and Sarah have been married for 30 years.
There is no federal inheritance tax. Only six states currently impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax rate and exemption depend on the relationship between the decedent and the heir-spouses and direct descendants often receive favorable treatment.
In some cases, transferring your property to your children during your lifetime is the best way to pass on wealth and make sure that your heirs are adequately provided for. It can also be a useful way of reducing Inheritance Tax (IHT) or protecting the property from a future sale to fund care home costs.
Sell the Property Immediately
So if you inherit your parents' home and it's worth $250,000, selling it right away could help you avoid capital gains tax if it's still only worth $250,000 at the time of the sale.
The Bottom Line. Buying your parents' home and renting it back isn't for every family, but in the right situation, it's a win-win. Your parents get cash and peace of mind, you get a rental property with tax benefits, and the family wealth stays intact instead of slipping away through probate, lawsuits, or bad planning.
Passing on wealth to spouses or civil partners. Charitable donations and amateur sports clubs. Gifts made before deaths. Small gifts and annual gifts.
Each individual in the UK has an annual gift allowance of £3,000, meaning that you can gift up to this amount each tax year without any tax implications. This £3,000 can either go entirely to one person, or can be split between multiple people. This is known as the 'annual exemption'.
Inheriting $100,000 or more is often considered sizable. This sum of money is significant, and it's essential to manage it wisely to meet your financial goals. A wealth manager or financial advisor can help you navigate how to approach this.