You don't report the inheritance itself to the IRS, but you may need to report income it generates

Receiving an inheritance is not a taxable event. The IRS does not tax the money or property you inherit, and you do not file a form to report that you received it. However, if your inheritance produces income — interest, dividends, rental payments, or distributions from a trust — you must report that income on your tax return in the year you receive it.

The person who died (the decedent) may have owed income tax on earnings up to the date of death. The executor or administrator of the estate files a final tax return for the decedent. You, as the heir, are responsible only for reporting income that comes to you after you inherit.

The distinction matters because many people confuse the inheritance itself with the income it produces. You will not receive an IRS notice asking you to report the inheritance. You will receive tax documents — Forms 1099, K-1, or 1098 — if the inherited assets generate income, and those documents trigger your reporting obligation.

Key Takeaways

  • Inherited money and property are not taxable income, and you do not report the inheritance amount to the IRS.
  • Income generated by inherited assets — interest, dividends, rental income, or trust distributions — must be reported on your tax return for the year you receive it.
  • The executor of the estate files a final return for the person who died; you report only income that comes to you after the inheritance.
  • You will receive tax documents (Forms 1099, K-1, or 1098) from the source of the income, which tell you what to report and where.
  • If you inherit a retirement account, the rules for reporting and withdrawals depend on the account type and your relationship to the decedent.

When inherited income must be reported on your tax return

Report inherited income in the tax year you actually receive it. If you inherit a savings account with $50,000 and the bank pays you $200 in interest during that year, you report the $200 as interest income — not the $50,000 principal.

Common types of inherited income that require reporting include:

  • Interest from bank accounts, savings bonds, or CDs
  • Dividends from stocks or mutual funds
  • Rental income from inherited real estate
  • Distributions from an inherited trust or estate
  • Pension or annuity payments you receive as a beneficiary

The financial institution or trustee holding the inherited asset will send you a tax form documenting the income. You use that form to complete your own tax return. You do not need to contact the IRS to report the inheritance itself.

Tax forms you may receive for inherited income

Form 1099-INT reports interest income from inherited bank accounts, CDs, or bonds. The bank or financial institution sends this to you by January 31 of the year following the year the interest was paid.

Form 1099-DIV reports dividends from inherited stocks or mutual funds. You receive it from the brokerage or fund company by the same January 31 deadline.

Form 1098-T reports may have access to education expenses if you inherited funds used for education. This is less common but may apply if you inherit an education savings account.

Schedule K-1 reports your share of income, deductions, and credits from an inherited partnership, S corporation, or trust. The trustee or estate administrator sends this to you, usually by March 15 or later depending on the entity type. This form is more complex because it may include multiple types of income and deductions.

If you receive income from an inherited rental property, you may not receive a single tax form. Instead, you track the rental income and expenses yourself and report them on Schedule E of your tax return. Keep records of all rent collected and expenses paid.

Reporting inherited retirement accounts and IRAs

Inherited retirement accounts have special rules that depend on whether you are a spouse, a non-spouse beneficiary, or a minor child of the decedent. The rules also changed significantly in 2023 under the SECURE Act.

If you inherited a traditional IRA or 401(k), you generally must take withdrawals over time and report them as income. The timing and amount of required withdrawals depend on your relationship to the original account holder and the account type. Withdrawals are reported on Form 1099-R, which the financial institution sends to you.

If you inherited a Roth IRA, the same withdrawal rules apply, but may have access to distributions are tax-free. Non-may have access to distributions may be subject to tax on the earnings portion.

If you inherited a 401(k) or similar employer plan, the plan administrator will explain your options, which typically include rolling the funds into an inherited IRA or taking a lump-sum distribution. Each option has different tax consequences and reporting requirements.

Because inherited retirement account rules are complex and changed recently, contact the financial institution holding the account or a tax professional before taking any withdrawals. Taking money out incorrectly can trigger unexpected tax bills.

What the executor or administrator files for the decedent

The person managing the estate (the executor or administrator) files a final income tax return for the person who died. This return, filed on Form 1040, covers income earned from January 1 through the date of death in the year of death.

The executor also files Form 706 (the estate tax return) if the estate is large enough to require it. The threshold varies by year; in 2024 it is $13.61 million, but this amount changes annually. Most estates do not owe federal estate tax.

You do not file these returns. The executor does. Your responsibility begins when you receive income from the inherited assets after the estate is settled.

Inherited property and capital gains tax

If you inherit real estate, stocks, or other property and later sell it, you may owe capital gains tax on the profit. However, inherited property receives a step-up in basis, which usually means you owe no tax if you sell it shortly after inheriting it.

The step-up in basis means the property's value is reset to its fair market value on the date of death. If you inherit a house worth $300,000 and sell it for $305,000 six months later, your capital gain is only $5,000 (not the gain from the original purchase price). In many cases, the step-up eliminates capital gains tax entirely.

If you hold the inherited property for years and its value increases significantly, you will owe capital gains tax on the increase from the date of death forward. Report this on Schedule D of your tax return when you sell.

State inheritance and estate taxes

A few states impose inheritance tax or estate tax separate from federal tax. If you live in or inherit property in one of these states, you may have additional reporting requirements.

States with inheritance tax include Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax rate and exemptions vary by state and by your relationship to the decedent. Spouses are often exempt.

States with estate tax include Connecticut, Delaware, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Again, rates and thresholds vary.

If you inherit from someone who lived in or owned property in a state with these taxes, contact that state's tax agency or a tax professional to learn whether you owe state tax and how to report it.

Frequently Asked Questions

Do I have to report an inheritance to the IRS?

No. The inheritance itself is not reported to the IRS. You report only the income the inherited assets generate — interest, dividends, rental income, or distributions. The executor of the estate files a final return for the person who died.

What if I inherit money and don't spend it — do I owe tax?

No. Inheriting money is not taxable. You owe tax only on income the money earns. If you inherit $100,000 and leave it in a savings account earning 4% interest, you report the $4,000 in annual interest as income, not the principal.

Do I need to report inherited property I don't sell?

No. You report inherited property only when it generates income (rental income, for example) or when you sell it. Simply owning inherited property does not create a tax reporting requirement.

What happens if I inherit a house and rent it out?

You report the rental income on Schedule E of your tax return. You can deduct expenses like property tax, insurance, maintenance, and depreciation. Keep detailed records of all rent collected and expenses paid throughout the year.

Can I avoid taxes by inheriting instead of earning the money?

Inheritance is not taxed as income, but income from inherited assets is taxed the same way as income from other sources. The advantage is that you avoid income tax on the principal amount — only the earnings are taxed.