Here’s what HIVE AI had to say about “Do I need to pay taxes on an inheritance received in 2025?”:
Generally, no. Inheritances themselves are not considered taxable income for federal income tax purposes, regardless of the amount you receive or when you receive it, including in 2025.
Inheritances Are Not Taxable Income
Property received as a gift, bequest, or inheritance isn’t included in your income. However, if property you receive in this manner later produces income, such as interest, dividends, or rents, that income is taxable to you. Property received as a gift, bequest, or inheritance isn’t included in your income. However, if property you receive in this manner later produces income, such as interest, dividends, or rents, that income is taxable to you.
This tax treatment is also confirmed in IRS training materials, which list “inheritance or bequest” among types of non-taxable income. Inheritance or bequest IRS – Publication 4491-X: VITA/TCE Training Supplement is specifically identified as not taxable.
Income Generated from Inherited Assets
While the inheritance itself isn’t taxable, any income produced by the inherited assets after you receive them is taxable:
However, if property you receive in this manner later produces income, such as interest, dividends, or rents, that income is taxable to you. The income from property donated to a trust that is paid, credited, or distributed to you is taxable income to you.
For example:
- If you inherit a house and rent it out, the rental income is taxable
- If you inherit stocks or bonds, any dividends or interest they generate after the inheritance is taxable
- If you inherit a savings account, any interest earned after you receive the inheritance is taxable
Estate Taxes vs. Inheritance Taxes
It’s important to understand the difference between estate taxes and inheritance taxes:
- Federal Estate Tax: This is a tax on the transfer of property at death. It’s paid by the estate before assets are distributed to heirs. For 2025, only estates exceeding the federal exemption amount (projected to be around $6.8 million per individual) would owe federal estate tax. Individual A (never married) made cumulative post-1976 taxable gifts of $9 million, all of which were sheltered from gift tax by the cumulative total of $11.4 million in basic exclusion amount allowable on the dates of the gifts. The basic exclusion amount on A’s date of death is $6.8 million.
- Inheritance Tax: This is a tax imposed by some states on people who receive inheritances. Most states don’t have an inheritance tax, and even in states that do, immediate family members are often exempt or pay reduced rates.
The responsibility for paying estate taxes falls on the executor of the estate, not on the beneficiaries: The Federal estate tax imposed both with respect to the estates of citizens or residents and with respect to estates of nonresidents not citizens is payable by the executor or administrator of the decedent’s estate. This duty applies to the entire tax, regardless of the fact that the gross estate consists in part of property which does not come within the possession of the executor or administrator.
Special Situations
Inherited IRAs or Retirement Accounts
If you inherit a traditional IRA, 401(k), or other tax-deferred retirement account, distributions you take from these accounts will generally be taxable as income, as they would have been to the original owner. This is because the original owner never paid income tax on these funds.
Inherited Annuities
If you receive distributions from an inherited annuity, a portion may be taxable depending on the type of annuity and how it was funded.
Income in Respect of a Decedent (IRD)
Some inherited items represent income that the deceased person earned but didn’t receive before death. These are called “Income in Respect of a Decedent” (IRD) and are taxable to the beneficiary when received. Examples include:
- Uncollected salary or wages
- Unpaid commissions
- Distributions from inherited traditional IRAs
State Taxes on Inheritances
While there is no federal inheritance tax, a few states do impose inheritance taxes on beneficiaries who receive property from a deceased person. As of 2023, only six states have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Each state has its own rules about which beneficiaries must pay and how much.
Reporting Requirements
Since inheritances are not considered taxable income, you generally don’t need to report them on your federal income tax return. However, if you receive income from inherited assets after the inheritance, you must report that income.
Conclusion
To summarize:
- The inheritance itself is not taxable income to you as a beneficiary
- Any income generated by inherited assets after you receive them is taxable
- The estate may have paid estate taxes before distributing assets to beneficiaries, but this is the responsibility of the estate, not the beneficiaries
- A few states have inheritance taxes that might apply depending on your relationship to the deceased and the state’s laws
If you’re receiving a substantial inheritance, it may be wise to consult with a tax professional to understand any potential tax implications specific to your situation, especially if you live in a state with inheritance taxes or if you’re inheriting complex assets like retirement accounts or annuities.
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