What States Don’t Have Inheritance Tax?

An inheritance tax is a state-level tax paid by an individual who receives money or property from the estate of a deceased person. This tax is distinct from other types of taxes related to death, and its application depends entirely on state law. The federal government does not impose an inheritance tax. Understanding whether this tax applies to you depends on which state’s laws govern the inheritance.

States Without an Inheritance Tax

The vast majority of states do not levy an inheritance tax. The 44 states that do not have an inheritance tax are: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. Iowa officially repealed its inheritance tax for deaths occurring on or after January 1, 2025.

States With an Inheritance Tax

Only a handful of states currently impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. A defining feature of these taxes is that the rate is directly tied to the beneficiary’s relationship with the decedent.

Surviving spouses are universally exempt from paying inheritance tax in all states that levy it. Beyond spouses, the rules diverge. For instance, in New Jersey and Kentucky, direct descendants like children and grandchildren are also fully exempt. However, in Pennsylvania, transfers to direct descendants are subject to a 4.5% tax rate, while siblings face a 12% rate.

The tax rates and exemption amounts vary significantly from state to state and by beneficiary class. For example, in New Jersey, a sibling can inherit up to $25,000 tax-free, but amounts above that are taxed at rates from 11% to 16%. Unrelated heirs in Nebraska face a top tax rate of 15% on amounts over a small exemption. Maryland is unique as it is the only state to impose both an inheritance tax and a separate estate tax.

Understanding the Difference Between Inheritance and Estate Tax

A common point of confusion is the distinction between an inheritance tax and an estate tax. An inheritance tax is paid by the person receiving the assets, and the rate can vary based on their relationship to the deceased.

Conversely, an estate tax is levied on the deceased person’s total net assets before any distribution to heirs. The federal government imposes an estate tax, but its exemption is very high—$13.99 million for an individual—meaning it only affects the wealthiest estates.

A separate group of states imposes its own state-level estate tax. These states are:

• Connecticut
• District of Columbia
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Minnesota
• New York
• Oregon
• Rhode Island
• Vermont
• Washington

The exemption amounts for these state estate taxes are much lower than the federal level, with thresholds ranging from $1 million in Oregon to $13.99 million in Connecticut. An estate’s liability for this tax is determined by the total value of its assets exceeding the state’s specific threshold.

Key Factors Determining Inheritance Tax Liability

Whether an inheritance is subject to tax is primarily determined by two factors: the decedent’s state of legal residence, known as domicile, and the physical location of the property being inherited. A person’s domicile is the state they consider their permanent home and where they intend to return. The laws of the decedent’s domiciliary state govern the taxation of their intangible personal property, such as bank accounts, stocks, and bonds.

This means if a person dies while domiciled in a state with an inheritance tax, any intangible assets they leave behind may be subject to that tax, even if the beneficiary lives in a state with no such tax. For example, if an aunt domiciled in Pennsylvania leaves a stock portfolio to her nephew living in California, the nephew may owe Pennsylvania inheritance tax on that portfolio.

Real estate and tangible personal property, like vehicles or art, are treated differently. These assets are taxed by the state in which they are physically located, a concept known as “situs.” If a resident of Florida, a state with no inheritance tax, dies owning a vacation home in Maryland, the heir of that property may be subject to Maryland’s inheritance tax on the value of the home, regardless of where the heir or the decedent legally resided.