What to Know About the Inheritance Tax in 2025

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If you’re in line to receive a substantial inheritance, you’re probably wondering if you’ll owe a hefty tax on it.

You may have to pay an inheritance tax on a portion of your assets. However, there is no federal inheritance tax, and as of 2025, only five states levy an inheritance tax. The rate largely depends on the size of your inheritance and your relationship to the deceased. Inheritance tax rates are either flat or on a sliding scale and can be up to 20 percent.

What about estate taxes? Depending on the size of the estate, these taxes could be waiting for you as well. Unlike inheritance tax, there is a federal estate tax, although the threshold is quite high. And a number of states levy estate taxes as well. 

Let’s take a closer look at inheritance taxes and estate taxes and how they might affect you.

What’s Inheritance Tax and How Does It Work?

Inheritance tax is a state tax levied on inherited assets. The person receiving the asset, or the beneficiary, is responsible for paying the tax. Today, the following states have inheritance taxes.

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Iowa previously had an inheritance tax, but the state has ended it for deaths occurring on or after Jan. 1, 2025.

As you can see, the majority of states are exempt entirely from an inheritance tax. States that do impose it typically have threshold amounts that are exempt. For example, if your state’s inheritance tax exemption threshold is $25,000 and you receive $30,000 from your friend’s estate after he passes, you’d only owe an inheritance tax on $5,000.

Moreover, most states exempt immediate family members from inheritance taxes. So if you received an inheritance from a parent, grandparent, or your children, you may owe no inheritance tax regardless of the amount inherited.

Spouses are almost always exempt from inheritance taxes.

Inheritance Tax Rates by State

If you do have to pay an inheritance tax, the rates depend on your state.

Kentucky’s inheritance tax rate is 4 to 16 percent. Note that certain relatives other than immediate family may be exempt on up to $500 or $1,000 worth of inherited assets, depending on their relationship. If inheritance taxes are paid within nine months of the death, a 5 percent discount may apply.

In Maryland, the tax rate is 10 percent. Inheritance assets worth $1,000 or less are exempt.

Nebraska’s is 1 to 15 percent. Certain close relatives may be exempt from up to $40,000 to $100,000 worth of inheritance, depending on the relationship.

New Jersey’s inheritance tax is 11 to 16 percent. A number of close relatives are exempt, while others may be exempt on up to $25,000.

Pennsylvania’s rate is 4.5 to 15 percent. If the tax is paid within three months of the death, you'll receive a 5 percent discount. Pennsylvania also offers some exemptions for certain types of real estate, such as farm land, and for family members of deceased active-duty military members.

Estate Tax versus Inheritance Tax

The main difference between inheritance tax and estate tax lies in how the tax is paid.

Inheritance tax is paid by heirs based on what they receive. Estate taxes are paid out of a person’s estate after their death and are typically paid by the deceased’s estate before their assets are distributed to their heirs; thus, they are based on the overall value of the estate.

While there’s no federal inheritance tax, there is a federal estate tax. And 12 states levy their own estate tax as well. Maryland is the only state that has both an inheritance tax and an estate tax.

Estate Taxes

For 2025, estate taxes are levied on estates valued at more than $13.99 million. And rates range from 20 percent to 40 percent at the federal level. Because of these high exemption thresholds, most people won’t owe an estate tax.

That’s because President Donald Trump’s Tax Cuts and Jobs Act (TCJA) raised those exemption levels substantially. And at the end of 2025, provisions in the TCJA are set to sunset or expire. This means that the lifetime gift and estate tax exemption amount would drop from $13.99 million to about $7 million.

However, there are ways to shelter assets from estate and inheritance taxes. For example, your loved one can set up an irrevocable trust. Once assets are transferred to the trust, they belong to the trust. Thus, they leave the estate of the grantor or trust creator. This could effectively reduce the grantor’s taxable estate. And because there is no direct property transfer of assets from the trust to the beneficiaries, it can also protect these assets from inheritance taxes.

When it comes to building an irrevocable trust, it’s essential to work with a qualified estate planning attorney.

The Bottom Line

Most states don’t levy an inheritance tax. And even if you reside in a state that does have one, you’re generally exempt if the deceased is an immediate family member such as a parent or grandparent.

If you do owe an inheritance tax, you will likely owe one on the amount above a state-specific threshold.

Estate taxes are more likely to impact you, although indirectly, because they are paid before an estate is dispersed to a person’s heirs.

Moreover, there are ways to mitigate both inheritance and estate taxes. One way is to have a loved one create an irrevocable trust. This allows assets to leave the person’s estate and thus be shielded from estate and inheritance taxes.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.