Tax on Inheritance 2026: What Heirs Owe, Asset by Asset

The three federal layers, and what is not one of them

“Tax on inheritance” mixes four different things. Only the first two are federal, and neither is an inheritance tax.

The state layer is the only place where an heir can owe a tax just for receiving property, and only in the states that have one. We keep that list, with rates and exclusions, on one page: states with an estate tax or inheritance tax. Examples of the heir-level kind are in our pages on Pennsylvania and New Jersey. This page covers the federal answer only.

What an heir owes, asset by asset

The question “is inherited money taxable” has a different answer for each thing you inherit. The first column is what you owe the federal government on the day you receive it; the third column is where the tax shows up later.

Two details cause most of the surprises. First, the retirement accounts and the annuity are the only items in the table that carry a built-in income tax. Everything else is either excluded (cash, life insurance) or reset to its value at death (house, shares, K-1 interests). The mechanics of that reset, including depreciation, trusts and joint titles, are in our guide to the step-up in basis. Second, the estate may owe income tax of its own on income it earns before it distributes: an estate with $600 or more of gross income files Form 1041 (IRS Publication 559), and the IRS says of the two layers that “there is never a double tax.” Our page on trust and estate brackets shows how that return is figured.

The retirement account: where the tax actually is

For many heirs the IRA is the only asset that produces a federal income tax bill. The rule for a non-spouse heir who must use the 10-year rule is in Publication 590-B: the heir must “withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner's death,” and the publication’s example is an owner who died in 2025, with a final deadline of December 31, 2035. A surviving spouse has other choices, including treating the IRA as their own. Whether yearly withdrawals are also required in years 1 to 9 depends on the date of death; that is covered in our inherited IRA 10-year rule page.

What makes the amount taxable is Publication 559: a lump sum from an inherited traditional IRA is taxable as income in respect of a decedent “up to the decedent's taxable balance,” which is the balance at death minus any basis from nondeductible contributions. Because the withdrawal is added to your own income, the timing matters. Our example:

How the table is built: for an unmarried individual, Rev. Proc. 2025-32 gives $5,800 plus 22% of the excess over $50,400 up to $105,700, $17,966 plus 24% of the excess over $105,700 up to $201,775 and $58,448 plus 35% of the excess over $256,225 up to $640,600. The $100,000 case is $5,800 + 22% × $49,600 = $16,712; $500,000 is $58,448 + 35% × $243,775 = $143,769.25; and $140,000 is $17,966 + 24% × $34,300 = $26,198. The example ignores state tax, the 3.8% net investment income tax, the estate tax deduction under section 691(c) and any change in the brackets after 2026. The point is the direction: the same $400,000 costs less when it lands across years, and the house and brokerage account cost nothing on receipt in either case.

If the $600,000 house is later sold for $620,000, the gain is $20,000, long term, because the basis is the $600,000 value at death (our arithmetic on 26 U.S.C. 1014(a)(1) and 1223(9)).

Savings bonds and annuities: the quiet exceptions

Series EE and I bonds. Publication 559 gives the rule: if the owner was a cash-method taxpayer who reported the interest each year, the interest to the date of death goes on the final return and the heir reports only the interest earned after. If the owner never reported, the heir pays on all of it when the bond is cashed. In the publication’s Example 1 an heir inherits a $1,000 Series EE bond that the owner bought for $500, with $94 accrued at death (value $594); the heir “would report $500 interest income” at maturity and may deduct any federal estate tax resulting from the $94. In practice the Form 1099-INT can show more interest than the heir owes, which the publication tells the heir to adjust on Schedule B.

Annuities. An annuity bought from an insurer does not get a step-up: section 1014(b)(9) lists “annuities described in section 72” among the property it does not apply to. For a single-sum death benefit, Publication 575 says the amount is generally taxable only to the extent it is more than the unrecovered cost of the contract. We read this to mean that what the owner paid in comes back tax-free and the growth is taxed. Section 72(s)(1)(B) requires a contract to provide that, if the holder dies before the annuity starting date, the entire interest is paid within 5 years, with exceptions for a designated beneficiary taking payments over life expectancy and for a surviving spouse (section 72(s)(2) and (3)). If the annuity is a 1035 exchange candidate or a long-term-care hybrid, see our pages on 1035 exchanges and hybrid long-term-care insurance.

Who actually owes the estate tax: IRS data

Federal estate tax is a small club. The IRS Statistics of Income table for returns filed in 2024 (released July 2026) counts 7,195 returns, with $248.94 billion of gross estate. 2,663 returns were taxable and paid $23.31 billion; 4,532 owed nothing. Most of these returns were for deaths in 2023, when the filing threshold was $12.92 million (SOI footnote). For 2026 deaths the threshold is $15,000,000, so fewer estates will file. For scale, the CDC reports 3,072,666 deaths in 2024; 2,663 taxable returns is about 1 in 1,150 deaths (our arithmetic; the years differ, so read it as an order of magnitude).

The same table is a census of what the estates that did file held. Nothing else we found breaks it out by asset:

Three things stand out (our reading of the table). Retirement assets are under 5% of these estates, because the large estates that file hold mostly taxable assets; the income-tax problem of an IRA belongs to the many heirs of estates too small to file, not to this group. Spouses and charities take most of the deductions: bequests to surviving spouses were $81.88 billion and charitable deductions $37.51 billion, against $248.94 billion of gross estate. And real estate is the largest single-category group after listed stock, which is why the illiquid-asset questions in our other pages (valuation, cash to pay the tax, selling to raise it) come up so often. The 2026 exclusion, the deduction mechanics and the return-by-return breakdown are in our estate tax exemption page; the value an heir must prove is in the date-of-death appraisal page.

The $15,000,000 is not permanent. Section 2010(c)(3)(B) indexes it for decedents dying after 2026, and as of October 23, 2026 we found no IRS publication of the 2027 figure (the 2026 figure came from Rev. Proc. 2025-32).

What a reader can do with this

If you have inherited something:

• Sort what you got by the table. Cash, house, shares and life insurance carry no federal income tax on receipt. The IRA, the annuity and any savings bonds are where a bill can appear.
• Ask the executor for the date-of-death values of the house, the shares and each K-1 interest. Those values are your basis (26 U.S.C. 1014(a)(1)).
• Before you withdraw from an inherited IRA, write down the date of the 10th-year deadline and check whether yearly withdrawals are also required. A one-year withdrawal can push you into a higher bracket, as the example shows.
• If a savings bond or a CD is in the estate, ask whether the owner reported the interest before death, so that the 1099-INT you receive is adjusted rather than overpaid.
• If the money came from outside the United States, check the $100,000 Form 3520 line before the return is due.
• Check the deceased’s state. A state estate or inheritance tax is the one tax on receipt; the list is here.

If you are planning what to leave:

• Compare what you own by the same table: the house and brokerage account pass with a reset basis, the IRA passes with its tax inside it. Naming a charity for the IRA and leaving other assets to family is a question for your lawyer and tax preparer (our reading of the table, not a recommendation).
• Check your own state first, since the federal $15,000,000 line is far above most state lines.
• For a final return, see our page on Form 1310 and the final return.

This is analysis of public documents, not investment, legal or tax advice.

FAQ

Sources, read and saved on October 23, 2026: 26 U.S.C. 72, 101, 102, 691, 706, 1014, 1223, 2001, 2010 and 2801 (Legal Information Institute, Cornell Law School); IRS Publications 525, 550, 559, 575 and 590-B (2025 returns); Rev. Proc. 2025-32; Instructions for Form 706 (Rev. July 2026); Instructions for Form 3520 (Rev. December 2025); IRS Statistics of Income, Estate Tax Returns Study, Table 1, estate tax returns filed in 2024 (July 2026); CDC National Center for Health Statistics, FastStats: Deaths (2024 data). Share calculations, the worked example and the reading of each table are our arithmetic.