Generally, you will not pay federal income tax on inherited money or property, as the IRS does not count it as taxable income. However, you may owe taxes on income the inherited assets generate (like interest or dividends) or if you inherit traditional IRAs/401(k)s. Some states impose a separate inheritance tax, and very large estates may face federal estate taxes.
Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source.
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, you don't report the inheritance itself to the IRS because it's not considered taxable income for you federally; however, you must report income the inheritance generates (like interest or dividends), handle inherited retirement accounts (which are taxable), and report large foreign inheritances (using Form 3520). The deceased person's estate pays any federal estate tax (if applicable).
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.
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.
How does the IRS find out about inheritance from parents? The executor or trustee files specific federal tax returns for the estate (such as Form 706 and Form 1041), which report the existence and distribution of the assets to the IRS.
Yes, you can give your son $100,000 tax-free in 2025 by utilizing the annual gift tax exclusion and your lifetime exemption, but you'll need to report the gift to the IRS on Form 709 since it exceeds the $19,000 annual limit, though you won't pay tax unless you exceed your much larger $13.99 million lifetime gift/estate tax exemption. The gift is considered yours (the giver) for tax purposes, not your son's.
Typically, the estate will pay any estate tax owed, with the beneficiaries receiving assets from the estate free of income taxes (see exception for retirement assets in the chart below). As a beneficiary, if you later sell or earn income from inherited assets, there may be income tax consequences.
Generally, receiving an inheritance (cash, property, investments) isn't taxable income for the recipient at the federal level in the U.S., but you pay taxes on any income the inheritance generates after you receive it (like interest or dividends), and some states have their own estate or inheritance taxes. The biggest exception is inheriting pre-tax retirement accounts (like traditional IRAs or 401(k)s), where distributions are taxed as ordinary income for the beneficiary.
In most cases, an inheritance isn't subject to income taxes. The assets passed on in an investment or bank account aren't considered taxable income, nor is life insurance.
2. Use trusts to shield assets. Setting up a trust is a powerful estate planning tool and one of the most reliable ways to avoid inheritance tax. Trusts allow you to transfer ownership of your assets to trustees for the benefit of your heirs.
Ideas for what to do with your inheritance
The states with no state estate tax as of mid-2023, are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, ...
What is the best thing to do with a cash inheritance?
Generally, you don't report the inheritance itself to the IRS because it's not considered taxable income for you federally; however, you must report income the inheritance generates (like interest or dividends), handle inherited retirement accounts (which are taxable), and report large foreign inheritances (using Form 3520). The deceased person's estate pays any federal estate tax (if applicable).
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.
You can deposit a large cash inheritance into a savings account, either by check or by wire transfer to your bank.
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.
If you die within seven years then the value of the gift is added back into your estate, but taper relief might reduce the rate of tax on it if at least three whole years have passed.
This tax does not necessarily affect the rich. All families can potentially face this confiscation of wealth. To be clear, the 100% tax not an actual tax by the federal or a state government. Rather, it is loss that occurs when a child, grandchild, or other loved one is completely cut off from inheriting family assets.