Hawaii has no inheritance tax, so as an heir you owe the state nothing simply for receiving money or property from someone who died. Hawaii does impose an estate tax, but that tax is paid by the estate itself before anything reaches beneficiaries, and it only applies when the estate is worth more than $5.49 million. A separate federal estate tax exists on top of that, with a much higher exemption of $15 million for deaths in 2026.
When Hawaii’s Estate Tax Actually Applies
The Hawaii estate tax kicks in only above $5,490,000 in total estate value. That figure, called the applicable exclusion amount, is fixed and does not adjust for inflation. Only the amount over the threshold is taxed. An estate worth $6 million would owe tax on roughly $510,000, not the full $6 million.
Rates are progressive, starting at 10% and reaching 20% on the largest estates.1Hawaii.gov. Hawaii Tax Information Release – Estate Tax Outline The top 20% rate applies to taxable amounts above $10 million, giving Hawaii the second-highest estate tax rate in the country behind Washington’s 35%.2Tax Foundation. Estate and Inheritance Taxes by State, 2025 The value counted is the fair market value at death of everything the deceased owned: real estate, investments, bank accounts, business interests, and life insurance proceeds payable to the estate.
Spouses Get Two Big Breaks
Anything that passes directly to a surviving spouse, or to a civil union partner recognized under Hawaii law, generally qualifies for an unlimited marital deduction and is not counted in the taxable estate. This applies to both the Hawaii and federal estate taxes.3Internal Revenue Service. Frequently Asked Questions on Estate Taxes The property has to pass outright, though certain life estates also qualify. If the surviving spouse is not a U.S. citizen, the deduction is only available through a Qualified Domestic Trust election.4Hawaii.gov. Instructions for Form M-6 Hawaii Estate Tax Return (Rev. 2025)
Hawaii also allows portability. If the first spouse to die doesn’t use their full $5.49 million exclusion, the unused portion can transfer to the surviving spouse, capped at $5,490,000. Together, a couple can potentially shelter up to $10.98 million from Hawaii estate tax.5Hawaii.gov. Form M-6 (Rev. 2024) Hawaii Estate Tax Return Portability isn’t automatic. The executor of the first spouse’s estate has to file a Hawaii estate tax return (Form M-6) and make the election, even when no tax is owed.
Lifetime Gifts Can Shrink the Hawaii Exclusion
Hawaii doesn’t have its own gift tax, so lifetime giving doesn’t trigger a separate state tax. There is a catch. Federal adjusted taxable gifts made during the deceased’s lifetime reduce the Hawaii exclusion at death.4Hawaii.gov. Instructions for Form M-6 Hawaii Estate Tax Return (Rev. 2025) Someone who used $2 million of their federal gift tax exemption on lifetime gifts has an effective Hawaii exclusion of $3.49 million, not $5.49 million. Because the federal exemption is so much larger, families who lean on it for lifetime gifting can inadvertently create a Hawaii estate tax bill.
The Federal Estate Tax Is Separate
The federal estate tax runs alongside Hawaii’s with its own exemption and rates. For deaths in 2026, the federal basic exclusion is $15 million per person, or $30 million for married couples using portability.6Internal Revenue Service. What’s New – Estate and Gift Tax That amount was made permanent by the One Big Beautiful Bill Act, signed into law on July 4, 2025, which eliminated the sunset that would have cut the exemption roughly in half.
Because the federal threshold is nearly three times Hawaii’s, plenty of estates land in the gap between them and owe Hawaii tax but nothing federal. An $8 million estate is a straightforward example: it clears the federal exemption entirely but faces a Hawaii bill. For estates over both thresholds, federal law allows a deduction for state estate taxes paid, which softens the combined hit.
Filing Deadlines
Both the Hawaii return (Form M-6) and the federal return (Form 706) are due nine months after the date of death, and payment is due at the same nine-month mark.7Hawaii.gov. Instructions for Form M-6 Hawaii Estate Tax Return (Rev. 2024)8Internal Revenue Service. Instructions for Form 706 (Rev. September 2025) An automatic six-month extension is available for both. For the Hawaii return, the executor attaches a copy of the IRS-approved extension (federal Form 4768) to Form M-6. If the estate is below the federal threshold and isn’t filing federally, the executor files Hawaii Form M-68 to get the same six-month extension.
An extension to file is not an extension to pay. Missing the payment deadline triggers a penalty of one-half of one percent per month on the unpaid balance, up to a maximum of 25%.9Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
Income Tax on What You Inherit
Receiving an inheritance is not itself an income-taxable event, but what you inherit and what you do with it can create tax down the line.
Stepped-Up Basis on Appreciated Property
When you inherit property, your cost basis for capital gains purposes resets to the fair market value on the date of death rather than what the deceased originally paid.10Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired From a Decedent If a parent bought a home for $200,000 decades ago and it was worth $900,000 at death, your basis is $900,000. Sell for $920,000 and you owe capital gains tax on $20,000, not on the $720,000 gain that built up during their lifetime. If you sell for less than the stepped-up value, the loss may be deductible.11Internal Revenue Service. Gifts and Inheritances
Inherited Retirement Accounts
Inherited IRAs and 401(k)s are the biggest exception to the rule that inheritances aren’t income. Distributions from those accounts are generally taxable income to the beneficiary, just as they would have been to the original account holder.12Internal Revenue Service. Retirement Topics – Beneficiary Most non-spouse beneficiaries must empty these accounts within ten years of the original owner’s death, which can compress a serious income tax bill into a short window depending on the balance and your own bracket.
Rental Property
Inherited rental property generates taxable income you report going forward. Inheriting any Hawaii real estate also means picking up the annual county property tax bill, which varies with location and use across Honolulu, Maui, Hawai’i, and Kaua’i counties.