Does Indiana Have an Inheritance Tax?
Learn the tax implications for heirs in Indiana. While the state's inheritance tax was repealed, other financial rules apply when receiving property or accounts.
Indiana does not have an inheritance tax. The state legislature repealed this tax, with the change effective for any deaths occurring after December 31, 2012. For individuals who pass away on or after January 1, 2013, their beneficiaries are not subject to a state-level tax on inherited assets. The repeal simplifies estate administration, as it eliminates the need to file a state inheritance tax return.
The Repeal of Indiana’s Inheritance Tax
Before its repeal, Indiana levied an inheritance tax directly on an estate’s beneficiaries. The amount of tax a beneficiary owed depended on their relationship to the person who died and the value of the assets they received. The law established different classes of heirs, giving closer relatives more favorable tax treatment.
For example, surviving spouses were completely exempt from the tax, while children and parents had a large exemption amount. More distant relatives, such as siblings or unrelated individuals, had smaller exemptions and were subject to higher tax rates. This system required filing a specific tax return, a process that is no longer necessary.
Federal Estate and Gift Tax Rules
While Indiana no longer imposes an inheritance tax, the federal government does have an estate tax. This tax is paid by the deceased person’s estate itself, rather than by the individual heirs. The tax applies only to estates with a total value exceeding a high exemption amount, which is adjusted annually for inflation. For 2025, the federal estate tax exemption is $13.99 million per individual.
Due to this high exemption, most estates in the United States do not owe any federal estate tax. For a married couple, this exemption can be doubled, allowing them to pass on nearly $28 million tax-free. Any portion of an estate’s value above the exemption amount is taxed at rates up to 40%.
The federal gift tax is closely related to the estate tax. This tax applies to significant gifts made during a person’s lifetime and uses the same lifetime exemption as the estate tax. An individual can give up to $19,000 per year to any number of people without tax implications in 2025. Gifts exceeding this annual amount reduce the giver’s lifetime estate tax exemption, but tax is not paid until the total lifetime gifts surpass the multi-million dollar threshold.
Income Tax on Inherited Assets
Beneficiaries may still face tax obligations on income generated from inherited assets, such as capital gains tax on property and income tax on retirement account distributions. When an individual inherits assets like stocks or real estate, the asset’s cost basis is “stepped up” to its fair market value at the date of the original owner’s death. This rule is found in Section 1014 of the Internal Revenue Code.
This stepped-up basis is a benefit for heirs. For example, if a parent bought stock for $20,000 and it was worth $100,000 when they died, the heir’s cost basis becomes $100,000. If the heir sells the stock for that price, there is no capital gain and no capital gains tax to pay, allowing appreciation during the owner’s life to pass to the beneficiary tax-free.
The tax treatment for inherited retirement accounts, such as traditional 401(k)s and IRAs, is different because these accounts do not receive a stepped-up basis. A beneficiary will owe ordinary income tax on any distributions they take from the account. Under the SECURE Act, most non-spouse beneficiaries who inherit these accounts must withdraw all funds within 10 years of the original owner’s death. These withdrawals are taxed at the beneficiary’s personal income tax rate in the year the money is taken out.