Does Alabama Have an Inheritance or Estate Tax?

Receiving an inheritance often brings financial questions, and a primary concern for many is understanding potential tax implications. The rules surrounding inheritance can be complex, varying between federal and state jurisdictions and depending on the type of asset involved.

Alabama Inheritance and Estate Taxes

Alabama does not impose an inheritance tax or an estate tax. An inheritance tax is a tax paid by the person who receives money or property from the estate of a deceased person. Conversely, an estate tax is levied on the entire value of a deceased person’s estate before any assets are distributed to the heirs; it is paid by the estate itself.

The absence of these state-level taxes in Alabama simplifies the process for beneficiaries. You will not owe any tax to the state of Alabama simply for inheriting assets from an estate. This applies regardless of the size of the inheritance or your relationship to the person who has passed away.

Potential Federal Estate Tax

While Alabama does not have an estate tax, the federal government does. This tax applies to the transfer of property at death, but only for very large estates. For 2025, the federal estate tax exemption is $13.99 million per individual, meaning an estate’s total value must exceed this threshold before any federal estate tax is due.

This exemption amount is so significant that the vast majority of estates are not subject to this tax. For a married couple, this exemption is effectively doubled, allowing them to pass on up to $27.98 million tax-free. If an estate’s value does exceed the exemption, the tax is paid by the estate from its assets before distribution. The tax return for this, Form 706, is due nine months after the individual’s death.

Taxes on Income from Inherited Assets

Receiving an inheritance in Alabama is not a taxable event, but the assets you inherit can generate taxable income. If you sell an inherited asset like real estate or stocks for more than its value at the time of the owner’s death, you may owe capital gains tax on the profit. A rule known as the “step-up in basis” often minimizes this tax. The asset’s cost basis is “stepped up” to its fair market value on the date of death, so you only pay tax on appreciation that occurs after you inherit it.

Inherited retirement accounts, such as a traditional 401(k) or IRA, have different rules. Withdrawals from these accounts are generally treated as taxable income to the beneficiary. Under rules finalized in 2025, most non-spouse beneficiaries who inherited an IRA after 2019 must withdraw all funds from the account within 10 years of the original owner’s death. Annual required minimum distributions (RMDs) may also be necessary during the 10-year period, and failing to take them can result in a 25% penalty.

When Another State’s Taxes May Apply

A key consideration is that tax obligations are determined by the state where the deceased person lived, not where the beneficiary resides. If you live in Alabama but inherit from someone who was a resident of a state with an inheritance tax, you may be required to pay that state’s tax. These states include:

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Similarly, if the deceased owned real estate or tangible personal property in a state with an estate tax, that state’s tax laws could apply to that property. The responsibility for filing and paying these taxes falls on the beneficiary for an inheritance tax or the estate’s executor for an estate tax. The location of the decedent and their assets is a key factor in determining the tax picture.