Understanding Inheritance and Real Estate Taxes in the US

Inheritance and real estate taxes, commonly known as “death taxes,” differ significantly across the United States.

The federal real estate tax only affects affluent individuals, specifically those with estates worth over $13.61 million in 2024. For most folks, these taxes aren’t a concern—unless, of course, you’ve just inherited a lavish mansion. However, some states do implement their own taxes that can impact both property and beneficiaries, often with lower thresholds.

States with Inheritance Tax

If you inherit assets from someone who has passed away, you may be subject to state inheritance tax, but only six states collect this tax.

• Pennsylvania: Rates range from 4.5% for direct descendants to 15% for unrelated beneficiaries. Children over 21 face a 4.5% tax, while siblings pay 12%, and others, 15%.
• Maryland: A 10% inheritance tax is imposed on certain heirs, including domestic partners, unless inheriting a major jointly owned home. Spouses, children, parents, grandparents, and siblings are exempt.
• New Jersey: Here, inheritance taxes vary from 11% to 16%, depending on how closely related you are to the deceased.
• Kentucky: Rates range from 4% to 16% based on the beneficiary class.
• Nebraska: Inheritance tax rates vary from 1% to 18%, with closer relatives generally facing lower rates.

Interestingly, Iowa has eliminated its inheritance tax in recent years, with the complete phase-out effective from January 1, 2025. In Pennsylvania, a new bill has been introduced that could abolish their state inheritance tax as well.

States with Real Estate Tax

Property tax is charged against the total value of the deceased’s estate and is paid by the property itself before being passed on to heirs.

Twelve states along with the District of Columbia have real estate taxes that apply to the deceased’s property before distribution.

• Connecticut: Here, the exemption matches federal levels at $1361 million, and there’s a flat tax rate of 12%.
• Hawaii: Real estate taxes range from 10% to 20%, starting at an exemption threshold of $5.49 million.
• Illinois: Properties valued over $4 million are taxed at rates reaching up to 16%.
• Maine: Real estate tax applies to estates over $5.87 million.
• Maryland: In addition to inheritance tax, Maryland has real estate taxes on properties exceeding $5 million, reaching rates of up to 16%.
• Massachusetts: They tax properties worth over $1 million, with rates peaking at 16%.
• Minnesota: Estate value over $3 million is subject to a tax of up to 16%.
• New York: Here, taxes apply to properties exceeding $6.94 million, with rates from 6.06% to 16%. New York employs a “cliff” tax that affects properties exceeding the exemption by 5% or more, taxing not just the excess but the whole value.
• Oregon: Estates worth over $1 million are taxed, with rates up to 16%.
• Rhode Island: Properties valued over $1.7 million incur taxes, reaching rates of 16%.
• Vermont: Real estate taxes apply to estates over $2.75 million, with rates going up to 16%.
• Washington: Properties exceeding $2.193 million face taxes between 10% and 20%.
• District of Columbia: Tax applies to estates over $4 million at rates reaching 16%.