Does New Mexico Have an Estate Tax?
Learn how New Mexico taxes assets after death. While the state has no estate tax, its laws may still impact the inheritance a beneficiary receives.
Settling a loved one’s final affairs often involves questions about taxes. The laws governing taxes on a deceased person’s assets can be complex and vary between state and federal jurisdictions. This article clarifies New Mexico’s rules for estate and inheritance taxes and explains how federal tax law may affect residents.
New Mexico Estate Tax Status
New Mexico does not have a state-level estate tax. This means the state will not levy a tax on the total value of a person’s estate before its assets are distributed. For many years, New Mexico had a “pickup tax,” a type of tax directly linked to a credit available on the federal estate tax return.
The state’s tax was calculated as the maximum amount allowed for the state death tax credit on the federal return, redirecting money that would have gone to the federal government to the state instead. This system did not increase the total tax burden on an estate. However, the Economic Growth and Tax Relief Reconciliation Act of 2001 phased out the federal credit by 2005. Because New Mexico’s estate tax was dependent on this credit, its repeal nullified the state’s tax, and it has not been reinstated.
Understanding the New Mexico Inheritance Tax
While New Mexico does not have an estate tax, the state also does not have an inheritance tax. An estate tax is paid by the estate from its total assets before distribution. In contrast, an inheritance tax is levied on the person who receives property, with the amount owed depending on their relationship to the decedent and the value of the assets.
Some states with an inheritance tax structure it based on beneficiary classes. In these systems, close relatives like surviving spouses and children often face very low tax rates or are exempt. More distant relatives, like siblings or nephews, might fall into a class with a higher tax rate, while unrelated individuals typically pay the highest rate.
These inheritance tax systems often include specific exemption amounts for each class of beneficiary. For example, a child might inherit a certain amount of money tax-free, with the tax only applying to the value exceeding that threshold. This is not a concern for New Mexico residents, as the state does not impose this type of tax.
Federal Estate Tax Considerations for Residents
Even though New Mexico does not have its own estate tax, residents are still subject to the federal estate tax. This tax applies to the transfer of property at death and is calculated based on the “gross estate,” which includes everything a person owns at death, such as cash, real estate, investments, and business interests.
The federal government provides a substantial exemption, meaning only very large estates are required to pay this tax. For 2025, the federal estate tax exemption is $13.99 million per individual, and this figure is indexed for inflation. If the total value of an estate is less than this amount, no federal estate tax is due.
A feature of the federal system is “portability,” which allows a surviving spouse to use their deceased spouse’s unused exemption. To secure this benefit, the executor must file a federal estate tax return (Form 706) to make the portability election, even if no tax is owed. This allows a married couple to shield up to $27.98 million from federal estate taxes in 2025.
Under current law, the high exemption levels are scheduled to sunset at the end of 2025. This will significantly reduce the exemption amount unless Congress acts to extend it.