An inheritance tax is a state-levied tax on assets a beneficiary receives from a person who has died, with the responsibility for payment falling on the inheritor. This article clarifies the status of inheritance taxes in Texas and discusses other tax obligations that may arise for those inheriting property.
Texas State Inheritance Tax Explained
Texas does not have a state inheritance tax. This means that if you inherit property from a Texas resident, the state will not tax you on the value of that inheritance. The person receiving the assets, known as the beneficiary, is not required to pay a state tax for inheriting.
Previously, Texas did have an inheritance tax, but its existence was tied to a federal provision known as the state death tax credit. When federal tax laws changed and eliminated this credit, the Texas inheritance tax became obsolete. The state’s inheritance tax, noted in Chapter 211 of the Tax Code, was officially repealed effective September 1, 2015.1Texas Legislature Online. 84(R) SB 752 – Enrolled Version
Texas State Estate Tax Explained
In addition to not having an inheritance tax, Texas also does not impose a state estate tax. It is helpful to distinguish this from an inheritance tax. An estate tax is calculated based on the total value of a deceased person’s assets, or their “estate,” before any property is distributed to heirs. The tax is paid by the estate itself, rather than by individual beneficiaries.
Much like the state’s former inheritance tax, the Texas estate tax was linked to the federal state death tax credit. When this federal credit was phased out, the legal basis for the Texas estate tax was eliminated, and it is no longer collected.
Understanding the Federal Estate Tax
While Texans are free from state-level inheritance and estate taxes, a federal estate tax can still apply to very large estates. This tax is levied on the transfer of a person’s assets to their heirs after death and is paid by the deceased person’s estate, not by the individuals receiving the inheritance.
For 2025, an estate is only subject to the federal estate tax if its total value of assets and prior taxable gifts exceeds $13.99 million.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2025 This exemption amount is indexed for inflation and can increase in future years. Estates valued below this threshold are not required to pay any federal estate tax. The tax rate for amounts exceeding the exemption is a flat 40%.
A feature of the federal system is “portability,” which allows a surviving spouse to use any unused portion of their deceased spouse’s exemption, effectively doubling the potential exemption for a married couple. If an estate’s value exceeds the exemption, the executor must file IRS Form 706, the U.S. Estate (and Generation-Skipping Transfer) Tax Return.3Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return The return is due nine months after the date of death.4Internal Revenue Service. Instructions for Form 706 (10/2024)
Other Tax Considerations for Inheritances in Texas
Beneficiaries in Texas may face other tax situations after receiving property. Certain types of inherited assets can trigger income tax obligations. For example, if you inherit a traditional IRA or a 401(k), you will have to pay income tax on the distributions you take from those accounts.
For other assets like stocks or real estate, a concept known as “step-up in basis” can provide a significant tax benefit. The cost basis of an inherited asset is adjusted to its fair market value at the time of the original owner’s death.5Legal Information Institute. 26 U.S. Code § 1014 – Basis of Property Acquired From a Decedent This can reduce or eliminate capital gains taxes if the beneficiary decides to sell the asset.
Inheriting real property means the new owner assumes responsibility for all future property taxes. This is an ongoing financial obligation based on the property’s assessed value and is paid to local taxing authorities, not a tax on the act of inheritance itself.