What the "death tax" actually means
The "death tax" is an informal name for taxes owed on property and money you leave behind when you die. The formal names are estate tax (a federal tax) and inheritance tax (a state tax in some states). These are separate from property tax, which you or your heirs pay yearly on land and buildings while someone owns them.
Most people do not owe these taxes. The federal estate tax only applies if your total assets — house, bank accounts, investments, life insurance, everything — exceed $13.61 million in 2024. That threshold changes yearly. Only 12 states plus Washington, D.C. have their own inheritance or estate taxes, and most of those have lower thresholds than the federal level.
If you own property outright and die, your heirs inherit it. They then owe property tax going forward, just as you did. But they do not owe estate or inheritance tax unless your total estate crosses the threshold for your state or the federal government.
Key Takeaways
- Estate tax is federal and only applies to estates worth more than $13.61 million in 2024; most people's estates fall below this amount.
- Inheritance tax is a state-level tax in 12 states and Washington, D.C., and thresholds vary by state and sometimes by relationship to the deceased.
- Property tax and estate or inheritance tax are different: property tax is yearly and owed by whoever owns the property; estate tax is owed once, when someone dies.
- Your heirs will owe property tax on inherited real estate starting the year after you die, regardless of whether estate or inheritance tax applies.
Federal estate tax: who owes it and when
The federal estate tax is collected by the IRS. It applies only if your total estate — the value of everything you own — exceeds $13.61 million as of 2024. This threshold is called the exemption amount. It changes each year based on inflation and is set by Congress; it was lower in previous years and may be lower again after 2025.
If your estate is below the threshold, your heirs owe no federal estate tax. If it is above, the executor of your estate (the person named in your will to handle your affairs) files a federal estate tax return with the IRS. The tax is owed before property and other assets are distributed to heirs.
The tax rate on the amount over the threshold is 40 percent. So if your estate is worth $14 million, the taxable portion is $390,000 ($14 million minus $13.61 million), and the tax owed is $156,000. Your executor pays this from estate funds before heirs receive their inheritance.
State inheritance and estate taxes: which states have them
Twelve states and Washington, D.C. have their own inheritance or estate taxes. Some states call it an inheritance tax (owed by the person who receives the money or property), and some call it an estate tax (owed by the estate itself). The rules and thresholds differ by state.
States with inheritance tax are Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, and Tennessee. States with estate tax are Connecticut, Delaware, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Washington, D.C. also has an estate tax.
Thresholds vary widely. New Jersey's inheritance tax exemption is $25,000 per heir. Maryland's estate tax exemption is $5 million. Some states exempt close relatives like spouses and children but tax more distant relatives. If you own property in a state with an inheritance or estate tax and your estate exceeds that state's threshold, your executor files a state return in addition to any federal return.
How property tax differs from estate and inheritance tax
Property tax is an annual tax you or your heirs pay to your county or municipality based on the assessed value of real estate. It continues every year as long as someone owns the property. Estate tax and inheritance tax are one-time taxes owed when someone dies, based on the total value of everything they owned.
When you inherit property, you do not automatically owe estate or inheritance tax (unless the total estate exceeds your state or federal threshold). But you do become responsible for property tax on that real estate starting in the tax year after the previous owner died. Your county assessor may reassess the property value when it changes hands, which can raise or lower your yearly property tax bill.
Some states offer property tax breaks for surviving spouses or for property that passes to direct heirs, but these are separate from estate and inheritance tax. You will need to check your state and county rules to see what applies to you.
What happens to property when someone dies without a will
If you die without a will, your state's intestacy laws determine who inherits your property. Usually this means a spouse, then children, then parents or siblings, depending on who survives you. The property still passes to heirs, but the court oversees the process instead of an executor you named.
The same estate and inheritance tax rules apply whether you have a will or not. If your total estate exceeds the threshold, taxes are owed. If it does not, heirs inherit free of federal estate tax. Property tax on inherited real estate still begins the year after death.
Dying without a will can make the process slower and more expensive because the court must be involved. It does not change whether estate or inheritance tax is owed, but it can delay when heirs receive their inheritance and when they start paying property tax.
Ways to reduce estate tax if your assets are large
If your estate is close to or above the federal threshold, some people use legal strategies to reduce what their heirs will owe. These include giving money or property to heirs during your lifetime (up to $18,000 per person per year in 2024 without triggering gift tax), setting up trusts, or making charitable donations. A tax professional or estate attorney can explain which strategies fit your situation.
These strategies are complex and depend on your specific assets, family situation, and state law. They are not necessary for most people because most estates fall well below the federal threshold. But if you have significant property, investments, or life insurance, talking to an estate planner before you die can save your heirs money and time.
Frequently Asked Questions
Do I owe estate tax if I own a house worth $500,000?
No, not federally. A single house worth $500,000 is far below the $13.61 million federal exemption. You would owe estate tax only if your total assets — house, bank accounts, investments, life insurance, everything combined — exceed that threshold. Check your state's rules if you live in one of the 12 states or D.C. with an inheritance or estate tax, as some have lower thresholds.
Will my heirs have to pay property tax on inherited land?
Yes. Property tax is separate from estate tax. Your heirs will owe annual property tax on any real estate they inherit, starting in the tax year after your death. The amount depends on the assessed value and your county's tax rate. They may be able to claim a homestead exemption or other property tax break depending on your state.
What if I own property in two different states?
Your executor will need to file estate tax returns in any state where you owned real property and that state has an estate or inheritance tax. The federal estate tax applies to your total estate regardless of where property is located. Real property in each state will be subject to that state's property tax rules going forward.
Can I avoid the death tax by putting my house in my child's name now?
Transferring property to reduce estate tax is possible but has tax and legal consequences you should understand first. Depending on how you transfer it, you may owe gift tax, lose homestead exemptions, or create other problems. Talk to an estate attorney or tax professional before making any transfers.
Does life insurance count toward the estate tax threshold?
Yes. The value of life insurance proceeds is included in your total estate for federal estate tax purposes. If you have a large life insurance policy and other assets, the combined value could push your estate over the threshold. An estate planner can help you structure insurance to reduce this impact.