Do Beneficiaries Have to Pay Taxes When Inheriting Through Probate?
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If you inherit money, property, or investments through probate, one of the first questions you might ask is whether that inheritance is taxable. In most cases, simply receiving an inheritance is not considered taxable income at the federal level. But there are important rules and exceptions, especially regarding state inheritance taxes, estate taxes, and any future income you might earn from inherited assets.
How Probate Shapes What You Actually Receive
Probate is the court-supervised process that settles a person’s estate after death. The executor (or administrator, if there is no will) gathers assets, pays outstanding debts and taxes, and distributes what is left to beneficiaries. Whether or not a will exists, probate ensures that property is transferred legally and fairly.
Some assets bypass probate altogether, like retirement accounts with named beneficiaries, joint bank accounts with survivorship rights or property held in a living trust. Everything else typically goes through probate before it can be passed to heirs.
Inheritance Is Usually Not Taxable
Under federal law, inheritances are not treated as taxable income. If you inherit $50,000 in cash or receive your late parent’s house, you will not owe federal income tax simply for receiving it.
However, some states impose an inheritance tax. As of 2025, only five states, including Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, levy this tax. The rules vary by state and sometimes by relationship to the deceased (close relatives often pay less or nothing at all).
Estate Taxes Target the Estate, Not You
You may have also heard about estate tax, but this is a different issue. Estate tax is levied on the total value of the deceased person’s estate before it is distributed to heirs. At the federal level, estate tax only applies to estates worth more than $13.99 million in 2025, meaning very few families are affected.
Some states, however, also have their own estate taxes with lower thresholds, including New York, Massachusetts, Oregon, and Washington. If the estate is large enough to trigger state or federal estate tax, the executor pays it out of the estate’s funds before distributing what is left to you.
When Do Inherited Assets Become Taxable?
Even though inheritances are not taxable when received, any income those assets generate after you inherit them is taxable. In some cases, you may also receive income in respect of a decedent — money the deceased was entitled to but had not received before passing (like accrued salary or interest). You will report that income on your tax return.
The Step-Up in Basis Can Reduce Future Taxes
One big advantage of inheriting property is the step-up in basis. This resets the property’s value for tax purposes to its fair market value on the date of death. If you sell the property later, you’ll likely pay less in capital gains tax because the gain is calculated from its stepped-up value, not what the decedent paid.
Planning Ahead Can Save Time & Money
Because probate can be lengthy and expensive, many people plan their estates in ways that minimize probate involvement, like setting up living trusts, adding transfer-on-death designations, or naming beneficiaries on accounts. These steps can also reduce tax complications for heirs.
If you are about to receive an inheritance or serve as an executor, it is wise to consult a tax professional. They can help you determine whether any state inheritance or estate tax applies, report any income correctly, and take advantage of deductions or exclusions available to you.