Quick Answer
Most inherited assets receive a "stepped-up basis" to fair market value at death, meaning you pay no taxes on inherited gains. In 2026, you can inherit up to $13.99 million tax-free, and inherited IRAs must be withdrawn within 10 years for most non-spouse beneficiaries.
Best Answer
Diana Flores, EA
For anyone inheriting assets from parents, relatives, or spouses
The good news: Most inherited assets are tax-free to you
When you inherit money or property, you typically don't pay income tax on the inheritance itself. The estate may owe estate tax (if over $13.99 million in 2026), but that's paid before you receive anything. You get a "stepped-up basis" on most inherited assets.
What is stepped-up basis?
Stepped-up basis means inherited assets are valued at their fair market value on the date of death, not what the deceased originally paid. This eliminates capital gains tax on appreciation that occurred during the deceased's lifetime.
Example: Inherited stock gains
Your grandmother bought Apple stock for $10,000 in 2010. When she died in 2026, it was worth $150,000. You inherit the stock with a "stepped-up basis" of $150,000—not her original $10,000 cost.
If you sell immediately: $150,000 - $150,000 basis = $0 taxable gain
If she had gifted you the stock while alive, you'd inherit her $10,000 basis and owe capital gains tax on $140,000 when you sell.
Different types of inherited assets and their tax treatment
Cash and bank accounts
Real estate
Investment accounts (taxable)
Retirement accounts (IRAs, 401ks)
Inherited retirement accounts: Complex rules
Unlike other assets, inherited retirement accounts don't get stepped-up basis. The money was never taxed, so someone has to pay income tax when it's withdrawn.
Spouse beneficiaries (most flexible)
Non-spouse beneficiaries (stricter rules since 2020)
Example: $500,000 inherited traditional IRA
If you inherit a $500,000 traditional IRA from your parent:
State inheritance taxes
Six states impose inheritance taxes on beneficiaries (separate from estate taxes):
Rates vary by relationship to deceased and amount inherited. Spouses are typically exempt.
What you should do when you inherit assets
1. Get professional appraisals for real estate, business interests, and collectibles
2. Obtain death certificates (you'll need multiple copies)
3. Contact financial institutions to transfer accounts to your name
4. Consider tax planning for large inherited IRAs—spread withdrawals over 10 years
5. Keep detailed records of fair market values at date of death
Key takeaway: Most inherited assets get "stepped-up basis" eliminating capital gains tax, but inherited retirement accounts are fully taxable when withdrawn and must be emptied within 10 years for most beneficiaries.
Key Takeaway: Inherited assets get stepped-up basis (no capital gains tax), but inherited retirement accounts are fully taxable and must be withdrawn within 10 years.
Tax treatment comparison for different types of inherited assets
| Asset Type | Stepped-Up Basis? | Income Tax Due? | Special Rules |
|---|---|---|---|
| Cash/Bank Accounts | N/A | No | None |
| Stocks/Investments | Yes | Only on future gains | Fair market value at death |
| Real Estate | Yes | Only on future gains | Get appraisal at date of death |
| Traditional IRA/401k | No | Yes, when withdrawn | 10-year withdrawal rule |
| Roth IRA | No | No (if 5-year rule met) | 10-year withdrawal rule |
| Life Insurance | Yes | No | Income tax-free to beneficiaries |
More Perspectives
Michelle Woodard, JD
For those recently inheriting assets and needing to understand immediate tax implications
Immediate tax considerations after inheriting
When someone close to you dies, tax planning might be the last thing on your mind. But certain decisions must be made quickly to avoid costly mistakes.
Time-sensitive decisions (first 60 days)
1. Inherited IRA disclaimers: You have 9 months to disclaim (refuse) an inheritance, passing it to the next beneficiary. This might make sense if you're in a high tax bracket but your children aren't.
2. Estate income tax elections: Estates can choose their tax year end, potentially splitting income across two tax years to minimize taxes.
3. Property tax reassessments: Some states reassess property taxes after inheritance. File for homestead exemptions if you're moving into an inherited home.
Managing inherited debt
You don't inherit someone's debts, but debts must be paid from estate assets before you receive anything. However:
Multiple beneficiaries: Tax planning opportunities
If you're splitting an inherited IRA with siblings:
Example: You and your brother inherit your father's $400,000 IRA ($200,000 each). You're in the 24% tax bracket; he's retired and in the 12% bracket. Consider having him take larger withdrawals in early years while his rate is lower.
Emotional vs. financial decisions
Keeping the family home for sentimental reasons might not make financial sense:
Key takeaway: The first 60-90 days after inheriting require several time-sensitive tax decisions, particularly around IRAs and real estate—don't delay seeking professional guidance.
Key Takeaway: Several inheritance tax decisions must be made within 60-90 days, particularly IRA disclaimers and estate elections.
Diana Flores, EA
For older adults inheriting from spouses or peers, or planning their own estate distributions
Surviving spouse inheritance: Special advantages
As a surviving spouse, you have unique tax benefits that other beneficiaries don't receive:
Unlimited marital deduction
IRA rollover vs. inherited IRA choice
Option 1: Roll over to your own IRA
Option 2: Keep as inherited IRA
Managing inherited assets in retirement
Many seniors inherit substantial assets that can affect:
Medicare premiums (IRMAA surcharges)
Social Security taxation
Estate planning with inherited assets
If you inherit assets in your 70s or 80s:
Example tax planning: You inherit your spouse's $300,000 traditional IRA at age 68. Instead of taking small RMDs, consider larger withdrawals while you're in the 12% bracket, before Social Security and Medicare surcharges kick in.
Key takeaway: Surviving spouses have the most flexible inheritance options, including rolling IRAs to their own accounts and taking advantage of unlimited marital deduction benefits.
Key Takeaway: Surviving spouses can roll inherited IRAs into their own accounts and benefit from unlimited marital deduction—the most tax-advantaged inheritance situation.
Sources
- IRS Publication 559 — Survivors, Executors, and Administrators
- IRS Publication 590-B — Distributions from Individual Retirement Arrangements (IRAs)
Reviewed by Diana Flores, EA on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.