No, Indiana does not have an inheritance tax. The state repealed it in 2013, and no tax applies to deaths occurring after December 31, 2012.1Indiana Department of Revenue. Inheritance Tax Information Indiana also has no state estate tax. Receiving an inheritance from an Indiana decedent triggers no payment to the state. That’s the clean answer. The messier part is what can still cost you: federal estate tax on very large estates, inheritance tax owed to another state, and income tax when you eventually sell or withdraw from what you inherited.
What Indiana Repealed and When
Before repeal, Indiana taxed the recipient based on how closely they were related to the deceased, with spouses and children paying the least and unrelated beneficiaries paying the most. All of that is gone. As of October 5, 2023, the Indiana Department of Revenue no longer accepts inheritance tax returns for any estate, whether the decedent lived in Indiana or not.1Indiana Department of Revenue. Inheritance Tax Information If you’re inheriting from an Indiana resident, there is nothing to file with the state and no state tax to pay on the inheritance itself.
Inheriting From Someone in Another State
This is the trap most Indiana residents miss. Five states still impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax follows the decedent’s state of residence and the location of the property, not where the beneficiary lives. An Indiana resident who inherits from a parent who died in Pennsylvania, for example, may owe Pennsylvania inheritance tax on those assets. Living in Indiana does not exempt you. Each of those states sets its own rates and exemptions, and the amount usually depends on how closely you were related to the person who died, so the bill for a child looks very different from the bill for a niece, nephew, or friend.
Federal Estate Tax
An estate tax is different from an inheritance tax. Estate tax is charged to the deceased person’s estate before anything is distributed; inheritance tax is charged to the person receiving. Indiana has neither, but the federal government does tax large estates.
For deaths in 2026, the federal estate tax exemption is $15,000,000 per individual. The One Big Beautiful Bill Act, signed on July 4, 2025, permanently raised the exemption from the 2025 inflation-adjusted level of $13,990,000 and eliminated the sunset that had been scheduled for the end of 2025.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Future years continue to adjust for inflation.3Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax
Only estates whose gross value plus lifetime taxable gifts exceeds $15,000,000 need to file IRS Form 706.4Internal Revenue Service. Instructions for Form 706 (Rev. September 2025) The top federal rate is 40% on the portion above the exemption.5Internal Revenue Service. What’s New – Estate and Gift Tax The vast majority of Indiana estates come nowhere near that threshold and owe nothing federally either.
Portability Between Spouses
If the first spouse to die doesn’t use the full $15,000,000 exemption, the unused portion can transfer to the surviving spouse. This is called the deceased spousal unused exclusion, or portability. To preserve it, the estate’s representative must file Form 706 even if the estate is too small to owe any tax.6Internal Revenue Service. Frequently Asked Questions on Estate Taxes Skip that step and the unused exemption is gone for good. With portability properly elected, a married couple can shelter a combined $30,000,000.
The Filing Deadline
Form 706 is due nine months after the date of death. An automatic six-month extension is available by filing Form 4768 before the original due date.7Internal Revenue Service. Filing Estate and Gift Tax Returns The extension covers filing, not payment; estimated tax is still due at nine months. Filing late without an extension triggers a penalty of 5% of the unpaid tax per month, capped at 25%.8Internal Revenue Service. Failure to File Penalty
Income Tax After You Inherit
Receiving an inheritance is not itself taxable income. Neither federal law nor Indiana law treats money or property received from an estate as income for the year you receive it.9Internal Revenue Service. Publication 559 (2025), Survivors, Executors, and Administrators Tax questions show up later, when you sell an inherited asset or withdraw from an inherited retirement account.
Stepped-Up Basis on Inherited Property
When you inherit real estate, stock, or similar property, the cost basis resets to the fair market value on the date of death.10Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent That stepped-up basis can wipe out most of the capital gains tax if you later sell. Say a parent bought a house for $80,000 and it was worth $350,000 at death. Your basis is $350,000. Sell for $360,000 and you’re taxed on a $10,000 gain, not $280,000.
Nailing down the date-of-death value matters. For estates that file Form 706, the executor must also file Form 8971 to report the basis of inherited property to both the IRS and the beneficiaries, generally within 30 days of the Form 706 filing deadline.11Internal Revenue Service. Instructions for Form 8971 and Schedule A Beneficiaries must use that reported basis when they calculate gain or loss on a later sale.
Inherited IRAs and 401(k)s
Retirement accounts don’t get a stepped-up basis. The money inside was never taxed, so every withdrawal is ordinary income to the beneficiary.9Internal Revenue Service. Publication 559 (2025), Survivors, Executors, and Administrators That means federal income tax plus Indiana’s 2.95% state income tax on every distribution you take.
Your withdrawal timeline depends on your relationship to the person who died. A surviving spouse has the most flexibility and can generally roll the account into their own IRA. Most other individual beneficiaries have to empty the account by the end of the tenth year after the year of death. There are exceptions for a narrow group of “eligible designated beneficiaries”: minor children of the account holder, disabled or chronically ill individuals, and people no more than 10 years younger than the deceased.12Internal Revenue Service. Retirement Topics – Beneficiary
Timing your withdrawals matters. Draining a large inherited IRA in a single year can push you into a much higher bracket. Spreading distributions across the 10 years usually produces a smaller combined tax bill, though the balance has to be out by the end of year ten either way.
Lifetime Gifts and the Federal Gift Tax
Gift and estate taxes share one unified exemption, so large lifetime gifts reduce what’s sheltered at death. In 2026, anyone can give up to $19,000 per recipient per year without filing a gift tax return or touching the lifetime exemption.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill A married couple can give $38,000 per recipient by splitting gifts.
Gifts above $19,000 to one recipient require IRS Form 709, but they don’t automatically create a tax bill. They just chip away at the donor’s $15,000,000 lifetime exemption.5Internal Revenue Service. What’s New – Estate and Gift Tax Actual gift tax kicks in only after that lifetime amount is fully used. Indiana has no gift tax of its own.