How Much Money Can You Inherit Without Paying Taxes on It? [Updated Aug 2025]

When you receive an inheritance, understanding the tax implications is crucial. The question many ask is: how much money can you inherit without paying taxes on it? The answer depends on various factors, including federal and state tax regulations. Let’s explore this topic in detail.

Federal Estate Tax: The Key Player in 2025: Updated Aug 2025

Understanding the federal estate tax is crucial for estate planning. Here’s an expanded, real-time overview for 2025, reflecting the latest thresholds and rules:

Exemption Amount

• For 2025, the federal estate tax exemption is $13.99 million per individual. This means an individual can pass on up to this amount without incurring any federal estate taxes.
• For married couples, the exemption doubles to $27.98 million, provided proper planning and paperwork for portability are in place. If your estate is valued below these amounts, no federal estate tax is due.

The exemption was poised to decrease significantly at the end of 2025, but recent legislation (the “One Big Beautiful Bill Act” signed July 4, 2025) made the increased exemption permanent and will index it for inflation starting in 2026.

Tax Rates

• If the estate value exceeds the exemption amount, the excess is taxed at progressive rates ranging from 18% to 40%.
• The top rate of 40% applies to the value of the estate that is more than $1 million above the exemption.
• Here is a breakdown for 2025:

For example, if an individual’s estate is worth $14.5 million, only the amount above $13.99 million ($510,000) would be subject to estate tax, and the corresponding marginal rates apply to that taxable portion.

Marital Deduction

• The unlimited marital deduction allows one spouse to transfer any amount of assets to a surviving spouse, free from federal estate tax, if the surviving spouse is a U.S. citizen.
• This provision means married couples can defer estate tax liability until after the death of the surviving spouse, often doubling the tax-free transfer threshold.
• If the surviving spouse is not a U.S. citizen, a qualified domestic trust must be used for the marital deduction.

Portability: Any unused portion of a deceased spouse’s exemption can be transferred to the surviving spouse via a federal estate tax return. This increases the surviving spouse’s exemption—potentially up to the full combined amount for married couples.

How This Impacts Most Estates

• The high exemption amounts mean that most U.S. estates do not owe federal estate tax in 2025. The tax only applies to very large estates, generally those valued above $13.99 million (single) or $27.98 million (couple).
• Strategic use of marital deduction and exemption portability can preserve wealth across generations.

Key Takeaways and Planning Notes

• Proper estate planning can ensure you maximize exemptions for both spouses, potentially sheltering nearly $28 million from federal estate taxes.
• Changes in federal law in 2025 permanently increased exemptions and indexed them for inflation, reducing uncertainty for future years.
• Consult with an estate planning attorney or tax advisor to ensure your plan takes full advantage of current laws—including marital deduction, portability, and gift strategies.

This real-time overview covers the foundational rules—knowing these allows individuals and families to better plan for tax-efficient transfersfers of wealth.

State Estate and Inheritance Taxes

State estate and inheritance taxes add layers of complexity to the inheritance landscape beyond federal regulations. These taxes often have much lower exemption thresholds than the federal estate tax, meaning they can apply to more estates and impact more beneficiaries.

State Estate Taxes

Estate taxes are imposed on the estate itself before assets are distributed to heirs. Several states have their own estate taxes with exemption amounts that are significantly lower than the federal level ($13.99 million per individual in 2025). Some notable examples for 2025 include:

• New York: The estate tax exemption is $7.16 million. The tax rate is graduated, reaching a maximum of 16% for estates that exceed 105% of the exemption threshold. Notably, New York has a “tax cliff” where exceeding the exemption by even a small amount can trigger tax on the entire taxable estate amount over that threshold.
• Washington: The estate tax exemption was $2.193 million but was increased to $3 million effective July 1, 2025. Estates exceeding the exemption face tax rates from 10% up to 35%, depending on the size of the taxable estate, with higher rates applying for estates over $8.8 million.
• Massachusetts: The state estate tax exemption is $2 million with a maximum tax rate up to 16%.
• Illinois: The exemption amount is $4 million, which is a taxable threshold rather than a credit, and the estate tax applies beyond this level.
• Minnesota: The exemption amount is $3 million.

Other states like Oregon and New Jersey also impose estate taxes with varying exemption thresholds and tax rates.

State Inheritance Taxes

Inheritance taxes differ from estate taxes in that they are levied on the beneficiary receiving the assets, based on their relationship to the deceased and the inheritance value. Only a handful of states impose inheritance taxes, with exemptions and rates varying widely:

• States with inheritance taxes (2025): Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
• Tax rates range from 1% to 16%. Immediate family members (spouses, children) typically receive higher exemptions or reduced rates, while more distant relatives or unrelated beneficiaries often face higher taxes.
• For example, in Kentucky, nephews and nieces have a $1,000 exemption and are taxed up to 16%.
• Nebraska applies inheritance taxes to adult children who inherit sums above $100,000.

Comparison Table (Examples for 2025)

Important Notes

• Many states have non-portable exemptions, meaning unused exemptions by one spouse cannot be transferred to the surviving spouse, unlike the federal system.
• State inheritance taxes depend heavily on the relationship between the beneficiary and the deceased, often imposing significantly higher rates or lower exemptions on distant relatives or unrelated heirs.
• Some states also impose state gift taxes or include lifetime gifts in their estate tax calculations.
• Estate and inheritance taxes can often be reduced through strategic planning, including trusts, lifetime gifts, and leveraging marital deductions where applicable.

Given this variation, it’s essential for individuals dealing with inheritance planning to consult state-specific laws or qualified estate planning professionals in their state to understand their potential tax liabilities clearly.

Common Exemptions and Exceptions

Certain types of inheritances may be exempt from taxes:

1. Spousal Exemptions: Spouses generally inherit without paying federal or state taxes.
2. Small Estates: Estates below the state-specific exemption thresholds are not taxed.
3. Charitable Bequests: Donations to qualifying charities are exempt from estate and inheritance taxes.

Navigating Tax-Free Inheritances

Understanding how much you can inherit tax-free requires careful consideration of federal and state laws. Here are actionable tips to maximize tax benefits:

1. Know Your State Laws

If you live in a state with estate or inheritance taxes, familiarize yourself with the local regulations. Exemption amounts and tax rates vary widely.

2. Utilize Estate Planning Tools

Effective estate planning can minimize tax liabilities. Tools like trusts, gifts, and strategic asset transfers help in taking full advantage of exemptions and deductions.

3. Consult Professionals

Working with tax professionals or estate planners ensures compliance with current laws and maximizes your financial benefits.

Key Takeaways

• The federal estate tax exemption for 2025 is $13.99 million per individual.
• Only six states levy inheritance taxes, with varying exemptions and rates.
• Strategic estate planning can help reduce or eliminate tax obligations.

By understanding how much money you can inherit without paying taxes on it, you can make informed decisions and safeguard your financial future. Always consult professionals to navigate the complexities of inheritance tax laws.