Inheritance Calculator: What You'll Actually Receive After Taxes

Most people inheriting money won't pay federal estate tax. The federal exemption in 2026 is $13.61 million per person — and with portability between spouses, a married couple can pass up to $27.22 million tax-free. The vast majority of American estates fall well below this threshold.

But state taxes are a different story. Six states have inheritance taxes that apply to beneficiaries regardless of the estate's size. Receiving a $500,000 inheritance in Pennsylvania looks very different than receiving the same amount in Texas.

Federal Estate Tax: Who Actually Pays

The federal estate tax rate tops out at 40%. But it only applies to taxable estates exceeding $13.61 million (2026 exemption amount, indexed for inflation). According to the Tax Policy Center, fewer than 0.2% of estates pay federal estate tax annually.

The estate (not the beneficiary) pays the federal estate tax. Beneficiaries receive their inheritance net of whatever estate taxes the estate paid, if any.

Portability: A surviving spouse can inherit any unused exemption from their deceased spouse. If the first spouse dies with $7 million in taxable estate, their unused $6.61 million exemption passes to the survivor — who then has $13.61 + $6.61 = $20.22 million in combined exemption.

Sunset risk: The current high exemption is scheduled to sunset at the end of 2025 under current law. However, legislation typically extends or adjusts these thresholds. Wealthy estates should consult estate planning counsel about this uncertainty.

State Inheritance Tax: The Real Risk

Inheritance tax (distinct from estate tax) is paid by the beneficiary, not the estate. Six states levy it:

| State | Tax Rate Range | Key Exemptions | |-------|----------------|----------------| | Iowa | 2-6% | Spouses, children exempt | | Kentucky | 4-16% | Spouses, children, parents exempt | | Maryland | 10% | Spouses, children, parents, siblings exempt | | Nebraska | 1-18% | Spouses, parents, children exempt (partial) | | New Jersey | 11-16% | Spouses, children, grandchildren exempt | | Pennsylvania | 4.5-15% | Spouses exempt; children 4.5%, siblings 12%, others 15% |

New Jersey abolished its estate tax in 2018 but retained the inheritance tax. Maryland is unique — it has both a state estate tax and a state inheritance tax.

Real Example: $500,000 Inheritance

Scenario: A non-immediate family member inherits $500,000.

Texas (no state inheritance tax):

• Federal estate tax: $0 (estate below exemption)
• State inheritance tax: $0
• Amount received: $500,000

Pennsylvania (inheriting as a sibling, 12% rate):

• Federal estate tax: $0
• State inheritance tax: $500,000 x 12% = $60,000
• Amount received: $440,000

Pennsylvania (inheriting as a child, 4.5% rate):

• State inheritance tax: $500,000 x 4.5% = $22,500
• Amount received: $477,500

Nebraska (distant relative, 18% rate):

• State inheritance tax: $500,000 x 18% = $90,000
• Amount received: $410,000

Gift Tax Annual Exclusion

One strategy for reducing estate taxes is gifting during life. In 2026, the annual gift tax exclusion is $18,000 per recipient per giver. A couple can give $36,000 per year to each child or grandchild without filing a gift tax return.

On a $5 million estate with 4 children and 8 grandchildren, systematic annual gifting of $36,000 per family removes $432,000 from the taxable estate each year — all without using the lifetime exemption.

For large estates, direct payments for tuition and medical expenses (paid directly to the institution, not the recipient) are unlimited and don't count against the annual exclusion.

Income Tax on Inherited Assets

Beneficiaries generally don't pay income tax on inherited money. But there are exceptions:

Step-up in basis: Inherited stocks or real estate receive a step-up in cost basis to the fair market value at the date of death. If grandparent bought stock at $10 that's worth $100 at death, the beneficiary's basis is $100 — not $10. This eliminates the embedded capital gains tax on lifetime appreciation.

Inherited IRA/401k (non-spouse): Required to fully distribute within 10 years under SECURE 2.0 rules. Distributions are taxable as ordinary income. A $500,000 inherited IRA distributed over 10 years in the 24% bracket means roughly $120,000 in federal income tax.

Inherited Roth IRA: Also must be distributed within 10 years, but distributions are tax-free.

Trusts as a Tax Tool

Irrevocable trusts, charitable remainder trusts (CRTs), and qualified personal residence trusts (QPRTs) are common tools for high-net-worth families to transfer wealth while minimizing estate taxes and maintaining some control. These are complex instruments that require an estate planning attorney.

The core concept: moving assets into an irrevocable trust removes them from the taxable estate. You give up ownership and control but reduce future estate taxes.

Run the Numbers

Use the CalcMoney Compound Interest Calculator to model how a large inheritance, invested at various rates, grows over your remaining lifetime — and how different withdrawal strategies affect longevity.