Kentucky Inheritance Tax 2026: Nieces, Nephews, Rates, Nonresident
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Quick Answer
Kentucky charges an inheritance tax, not an estate tax, heir by heir, and for deaths on or after January 1, 2026 nieces and nephews join the exempt Class A: a spouse, parent, child, grandchild, brother, sister, niece or nephew owes nothing, while a daughter-in-law, son-in-law, aunt, uncle or great-grandchild (Class B) pays 4% to 16% above a $1,000 exemption and everyone else, cousins and friends included (Class C), pays 6% to 16% above $500 (KRS 140.070 and 140.080, read October 22, 2026). The change is in 2026 Ky. Acts ch. 198 (HB 869), signed April 27, 2026. A decedent who lived in another state is taxed on real estate and personal property located in Kentucky, with the exemption cut in proportion. Pay within nine months of death for a 5% discount; the return is due at 18 months. One warning: the Department of Revenue's own Inheritance Tax page, read the same day, still lists nephew and niece under Class B.
Key Takeaways
- Class A pays nothing: surviving spouse, parent, child, stepchild, adopted child, grandchild, brother, sister and, for deaths from January 1, 2026, a nephew, niece, or a nephew or niece of the half blood. Class B (daughter-in-law, son-in-law, aunt, uncle, great-grandchild) pays 4% on the first $10,000 rising to 16% above $200,000, after a $1,000 exemption. Class C (all others, cousins included) pays 6% rising to 16% above $60,000, after a $500 exemption.
- The law changed in sections 40 and 41 of 2026 Ky. Acts ch. 198 (HB 869, signed April 27, 2026). Section 68 says they apply “to estates of decedents who died on or after January 1, 2026.” A niece who inherits a $400,000 rental from a 2026 death owes $0; the same bequest from a 2025 death was taxed $54,960 (our arithmetic).
- The Department of Revenue's Inheritance Tax page (read October 22, 2026), its Guide (January 2021 edition) and its March 16, 2026 presentation date from before the signing or were not updated: the page still puts nieces and nephews in Class B and says “Inheritance Tax forms are current as of Tax Year 2012.” Where they conflict, the statute text controls; ask the estate's attorney to confirm the class on the return.
- Nonresident decedent: “real estate and personal property located in Kentucky and owned by a nonresident is subject to being taxed,” and KRS 140.080(2) cuts the exemption to the proportion that Kentucky property bears to the whole property transferred. Kentucky resident: real estate in another state is not taxed by Kentucky, but intangibles outside Kentucky are, and partnership property in another state is “under certain conditions.”
- Timing: a 5% discount if the tax is paid within nine months of death; the return is due within 18 months; if one heir's net tax exceeds $5,000 and the return is filed on time, the heir may pay in 10 equal annual installments, with interest on the deferred part from month 18.
- Gifts made within three years of death are presumed made in contemplation of death and taxed, listed stock is valued at the average of the day's high and low with no alternate valuation date, and an inherited IRA escapes tax only if it is paid out in substantially equal payments over life or at least 36 months (March 16, 2026 presentation).
- A bill to make Class B exempt for deaths from January 1, 2027 (HB 46) was sent to committee on January 14, 2026 and the record shows no later action. It is not law.
CSV · 150 rows
Kentucky inheritance tax 2026: the three classes, rates and exemptions, the 2026 Acts chapter 198 change, the nonresident rule, deadlines, deductions, IRA rule and ladders for each class
150 rows: class assignment by relationship, bracket rates for Class B and Class C, exemptions, the Department's own table, the three sections of Acts chapter 198, where the Department's pages disagree with the statute, deadlines, the resident and nonresident rules, deductions and valuation, the IRA rule, HB 46 and 59 rows of ladders and examples (our arithmetic).
What 2026 Ky. Acts ch. 198 changed, and what it left alone
Chapter 198 is HB 869, a long fiscal bill. The Legislative Research Commission's record shows “04/27/26: signed by Governor (Acts Ch. 198)”. Two of its sections are the inheritance tax: section 40 amends KRS 140.070 (the classes and rates) and section 41 amends KRS 140.080 (the exemptions). We read the enacted text, in which deleted words are bracketed, and compared it with the statute pages the Commission posts now.
| Item | Before the act | After the act (deaths on or after January 1, 2026) |
|---|---|---|
| Nephew, niece, half-blood nephew or niece | Class B: 4% to 16% above a $1,000 exemption | Class A, listed after the grandchild line and before brother and sister; “subject to the provisions of KRS 140.080,” which exempts the heir's total inheritable interest |
| Class A rate schedule in KRS 140.070(1) | A 2% to 10% schedule was still printed in the statute | Struck; it had no effect because Class A is exempt after June 30, 1998 |
| Class B and Class C brackets | Class B 4% to 16%; Class C 6% to 16% | Unchanged |
| Class B exemption $1,000; Class C exemption $500 | $1,000 and $500 | Unchanged |
| Pre-1998 Class A exemption language in KRS 140.080 | Dollar exemptions for deaths before July 1, 1998 | Struck as obsolete |
| Who the change applies to | - | Section 68: “Sections 40 and 41 of this Act shall apply to estates of decedents who died on or after January 1, 2026.” |
Two readings, both ours. First, the money moved only for one group: the niece or nephew who would have paid tax on a bequest above $1,000. Nobody else's rate or exemption changed. Second, the act reaches back to January 1, 2026 although it was signed on April 27, 2026, so an estate that closed early in 2026 on the old class may be worth a second look. The nieces and nephews of a spouse are another matter: the Department's Guide says that “nieces and nephews by marriage and great-nieces and great-nephews are Class C beneficiaries,” and the new statute text names only a nephew or niece “of the half blood,” not one by marriage.
The three classes and what each heir pays
Kentucky applies the class and the exemption to each heir separately, on that heir's distributive share. The exemption is not subtracted first and then taxed: it is charged against the lowest bracket, so a Class B heir pays nothing on the first $1,000 and 4% on the next $9,000. The Department's table prints the same result as a base amount plus a percentage, and our ladder reproduces it to the dollar.
| Class | Who | Exemption | Rate | Tax on $250,000 (our arithmetic) |
|---|---|---|---|---|
| A | Spouse, parent, child, stepchild, adopted child, grandchild, brother, sister, nephew, niece (half blood included) | Total inheritable interest | None | $0 |
| B | Daughter-in-law, son-in-law, aunt, uncle, great-grandchild | $1,000 | 4% to $10,000; 5% to $20,000; 6% to $30,000; 8% to $45,000; 10% to $60,000; 12% to $100,000; 14% to $200,000; 16% above | $30,960 |
| C | Everyone else: cousins, friends, unmarried partners, nephews and nieces by marriage, great-nieces and great-nephews, institutions not exempted by KRS 140.060 | $500 | 6% to $10,000; 8% to $20,000; 10% to $30,000; 12% to $45,000; 14% to $60,000; 16% above | $36,670 |
| Share received by one heir | Class A | Class B | Class C |
|---|---|---|---|
| $1,000 | $0 | $0 | $30 |
| $10,000 | $0 | $360 | $570 |
| $30,000 | $0 | $1,460 | $2,370 |
| $60,000 | $0 | $4,160 | $6,270 |
| $100,000 | $0 | $8,960 | $12,670 |
| $200,000 | $0 | $22,960 | $28,670 |
| $250,000 | $0 | $30,960 | $36,670 |
| $500,000 | $0 | $70,960 | $76,670 |
| $1,000,000 | $0 | $150,960 | $156,670 |
The ladder is our arithmetic from the rates in KRS 140.070 and the exemptions in KRS 140.080, and it matches the base amounts in the Department's table (for example $22,960 plus 16% above $200,000 for Class B, and $28,670 plus 16% above $200,000 for Class C). The top rate is the same, 16%, in both classes; what separates them is the head start Class B keeps through $200,000, about $5,700 of tax (our arithmetic). The Department puts the principle in one sentence: “Generally, the closer the relationship the greater the exemption and the smaller the tax rate.” On large shares the rate is 16% for everyone who is not exempt, so a niece's move to Class A is the only large change. (Kentucky also has no estate tax: “Since January 1, 2005, there has been no Kentucky estate tax.” For comparison, see how other states compare, and Nebraska's heir-by-heir ladder, Pennsylvania's rental and fund rules and New Jersey's classes.)
Where the property is: Kentucky residents, nonresidents and out-of-state rentals
This is the point our state-by-state list marked “not verified” on October 21, 2026. We have now read it in the Department's page, its Guide and KRS 140.080(2), and all three agree.
| Decedent | Property | Taxed by Kentucky? | Source |
|---|---|---|---|
| Kentucky resident | Real estate in another state | No: “If a Kentucky resident owned real estate in another state, that real estate is not taxable for Kentucky inheritance tax purposes.” | Department page and Guide |
| Kentucky resident | Intangible property outside Kentucky (bank accounts, stock, notes) | Yes: “all intangible property located outside of Kentucky is taxable” | Department page |
| Kentucky resident | Partnership property in another state | “Under certain conditions” yes | Department page |
| Nonresident | Real estate in Kentucky | Yes: “that property is subject to Kentucky inheritance taxes” | Department page |
| Nonresident | Personal property located in Kentucky | Yes, as stated on the Department's page; where an intangible such as a fund share is “located” is a question for counsel | Department page |
| Nonresident | Exemption | Prorated: the proportion of Kentucky-taxable property to the whole property transferred | KRS 140.080(2) |
| Nonresident decedent with no Kentucky real estate and no property with a business situs in Kentucky | Everything | Not a Kentucky matter: the Department says to contact the revenue department of the decedent's home state | Department page |
What it means for an owner of Kentucky rental property who lives elsewhere: the rental is in the Kentucky base, and the exemption for a Class B or Class C heir shrinks. In our example below, a $300,000 rental that is a quarter of a $1,200,000 estate leaves a cousin with a $125 exemption instead of $500. Class A heirs are untouched, because their exemption is their whole interest. The reverse case is bigger money: a Kentucky resident with a second rental in Florida or Tennessee does not add that rental to the Kentucky base (our worked example below shows $80,000 of tax on a friend's share that is not due). The Department's page does not say how it treats an LLC that owns the out-of-state rental, only that partnership property is taxable under certain conditions, so ask counsel before assuming an LLC or a limited partnership is safe. For the step-up in basis on the same property, see our guide.
What is taxed, what is deducted, and the IRA exception
The Guide's list of taxable property includes real estate, cash, bank accounts “even if located outside of Kentucky,” stock, bonds, life insurance payable to the insured or to the estate, annuities, debts due the decedent, farm machinery and crops, and jewelry. Three rules from the Department's March 16, 2026 presentation matter for investors.
| Topic | Kentucky rule | Source |
|---|---|---|
| Valuation date | Date-of-death value; “Assets cannot be reported at alternate value.” Exception: qualifying farm land at agricultural value (KRS 140.300 to 140.360) | March 16, 2026 presentation |
| Listed stock | Average of the high and low quoted selling price on the date of death; if markets are closed, average the high and low of the last working day before and the first after | March 16, 2026 presentation |
| Gifts within three years of death | Presumed made in contemplation of death and taxable; rebut with a pattern of giving older than three years or a living reason, in writing with documents | March 16, 2026 presentation; Department page |
| Retained life interest and transfers at death | Taxable whenever made, “usually involves real estate” | March 16, 2026 presentation |
| Inherited IRA (KRS 140.063) | Exempt only if paid as substantially equal periodic payments for life or over at least 36 months, and no more than 40% of the total in any 12 months; a lump sum, no distributions or unscheduled distributions are fully taxable | March 16, 2026 presentation |
| Funeral, monument and cemetery lot | Up to $5,000 in total | March 16, 2026 presentation (KRS 140.090) |
| Executor commission, attorney and administration costs | Deductible if actually allowed and paid; not also on the Form 741 fiduciary income tax return | March 16, 2026 presentation |
| Trustee fees | Not deductible: they are expenses of a trust that “exists independently from the decedent's estate” | March 16, 2026 presentation |
| Real estate selling costs | Deductible only if necessary to settle the estate (a will that directs the sale); not for property held in a trust | March 16, 2026 presentation |
The IRA row is the one that surprises families. A Class B or Class C heir who takes an inherited IRA as a lump sum pays Kentucky tax on all of it, while the same heir paid out over at least 36 months can owe none. It sits next to the federal 10-year rule for inherited IRAs, and the two schedules do not have to match. Non-traded fund shares are not named in the documents we read; they are stock or similar property, valued at date-of-death value, and the sponsor's value may not be a quoted price. Our page on heirs of a non-traded REIT or BDC covers who values them.
Paying: the nine-month discount, the 18-month return and installments
| Item | Rule | Source |
|---|---|---|
| Discount | 5% if the tax is paid within nine months of the date of death | Department page and Guide |
| Return due | Within 18 months of death, when tax is due; do not postpone it for a federal audit letter or a pending sale of real estate | Department page and Guide |
| Installments | If an heir's net inheritance tax exceeds $5,000 and the return is filed on time, 10 equal annual installments; the first is due with the return; interest on the deferred part starts 18 months after death | Department page |
| Who files | The personal representative, when any part of the estate passes to a taxable beneficiary or Form 706 is required | Department page |
| Nothing taxable | An Affidavit of Exemption, accepted by the court, if every taxable asset passes to exempt beneficiaries and Form 706 is not required; do not send a copy to the Department | Department page |
| Disclaimer | A disclaimer of a will bequest goes to the district court within nine months of death; for jointly owned property it goes to the trustee or custodian within nine months | March 16, 2026 presentation |
The nine-month discount and the nine-month disclaimer deadline fall on the same day, which is a planning point: a Class B or Class C heir who does not want a bequest has to decide before the discount window closes. Federal rules are separate: most Kentucky estates are far below the federal Form 706 threshold (see the federal exemption), so the Affidavit of Exemption is the document for an estate that passes only to Class A heirs. One loose end: the affidavit form in the Guide (92A300, 9-13) footnotes the exempt beneficiaries as “spouse, children, stepchildren, grandchildren, parent, brother, and sister,” with no nephew or niece. Ask the court clerk whether a niece or nephew heir needs a statement that cites KRS 140.070 as amended.
Worked examples (our arithmetic)
| Case | Tax | How |
|---|---|---|
| $400,000 rental left to a niece, death in 2026 | $0 | Class A, total inheritable interest exempt |
| Same rental, niece, death in 2025 | $54,960 | Class B: $22,960 + 16% x $200,000 |
| $400,000 to a daughter-in-law | $54,960 | Class B; $52,212 if paid within nine months (5% discount of $2,748) |
| Same, 10 installments | $5,496 a year plus interest | Net tax over $5,000, return filed within 18 months |
| $400,000 to a cousin | $60,670 | Class C: $28,670 + 16% x $200,000; $57,636.50 with the discount |
| $250,000 to an aunt | $30,960 | Class B |
| Ohio resident leaves a $300,000 Kentucky rental to a cousin; estate $1,200,000 | $44,692.50 | Exemption $500 x 300,000 / 1,200,000 = $125 charged against the 6% bracket; $44,670 if the full $500 applied |
| Kentucky resident leaves a friend a $500,000 Kentucky rental and a $500,000 Florida rental | $76,670, not $156,670 | Florida real estate is outside the Kentucky base; difference $80,000 |
For a death on June 10, 2026 the nine-month date is March 10, 2027 and the 18-month return date is December 10, 2027 (our arithmetic; the date depends on the actual date of death).
What the Department's pages say, and what the bill record says
On October 22, 2026 the Department of Revenue's Inheritance Tax page still lists niece, nephew, half-niece and half-nephew with the daughter-in-law, son-in-law, aunt, uncle and great-grandchild under Class B. A copy of the same page captured by the Internet Archive on August 26, 2026, four months after the signing, reads the same. The Guide is the January 2021 edition, and the March 16, 2026 presentation pre-dates the April 27 signing. We therefore rely on the statute and the act, and we flag the conflict for anyone who is told by a clerk, a bank or a software package that a niece is Class B. A second bill, HB 46 (2026), would have made Class B exempt as well for deaths from January 1, 2027; its last recorded action is a referral to the House Appropriations and Revenue Committee on January 14, 2026.
What a reader can do with this
- Find each heir's class first. The same $250,000 is $0 for a niece, $30,960 for an aunt and $36,670 for a cousin, so a will that names a cousin or a friend for a Kentucky rental deserves a second look.
- Check a 2026 death against the new class. If a niece or nephew paid or reserved tax on a 2026 death, or an estate was closed in 2026 on the old class, ask counsel whether a refund or a corrected return applies.
- Count where the property sits. For a Kentucky resident, out-of-state rentals are outside the Kentucky base, while intangibles and some partnership property are inside it. For a nonresident, Kentucky rentals and Kentucky personal property are inside and the exemption is prorated.
- Put dates in the file. Nine months for the 5% discount and the disclaimer; 18 months for the return and the start of interest on installments.
- Plan the cash. A tax of $50,000 or more on a daughter-in-law's share, or on a friend's, falls due while a rental or non-traded fund shares may still be unsaleable. Gifts within three years of death are pulled back in, so a lifetime gift near the end does not help; see the annual exclusion for the federal side.
- Check IRA payout elections before the inherited IRA is moved: the election must be made no later than the due date of the inheritance tax return.
This is analysis of public documents, not investment, legal or tax advice.
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Sources, read and saved on October 22, 2026: Kentucky Revised Statutes 140.070 and 140.080 as posted by the Legislative Research Commission (apps.legislature.ky.gov); 2026 Ky. Acts ch. 198 (HB 869), sections 40, 41, 68 and 75, and the HB 869 bill record (signed April 27, 2026); the record and introduced text of HB 46 (2026 Regular Session); the Kentucky Department of Revenue Inheritance Tax page (revenue.ky.gov, direct copy October 22, 2026 and Internet Archive copy August 26, 2026); the Department's Guide to Kentucky Inheritance and Estate Taxes (92F101, January 2021) and its Kentucky Inheritance Tax presentation (March 16, 2026). We could not load the Legislative Research Commission's history line for KRS 140.070 and relied on the enacted act text. Ladders, discounts, prorations and examples are our arithmetic. This is analysis of public documents, not investment, legal or tax advice.
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