Tax Obligations After a Death: A US Guide

Death and taxes are famously inevitable — and after a death, they often arrive at the same time. The tax obligations that arise when someone dies can be confusing, especially while you're grieving. This guide explains every category of tax that may be relevant, in plain English.

This guide covers US federal tax rules as generally applicable. State tax laws vary significantly. Consult a CPA or tax attorney for guidance specific to your estate.

The Final Individual Income Tax Return (Form 1040)

The executor or administrator of the estate is responsible for filing the deceased's final federal income tax return for the year of death. This is a regular Form 1040, covering income earned from January 1 through the date of death.

Deadline: April 15 of the year following the year of death (same as a regular return)
Filing status: A surviving spouse can file jointly for the year of death, which often results in a more favorable tax rate
Write "Deceased" and the date of death across the top of the return
If there's a refund, it goes to the estate. Attach IRS Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer) unless you are the surviving spouse filing jointly.

Income in Respect of a Decedent (IRD)

Some income that was owed to the deceased but not received before death (such as a final paycheck, IRA distributions, or business receivables) is called Income in Respect of a Decedent (IRD). This income is taxable to whoever receives it — either the estate or the beneficiary. IRD does not receive a stepped-up basis.

Estate Tax: What It Is and Who Pays It

The federal estate tax is a tax on the transfer of the deceased's taxable estate. In 2024, the federal estate tax exemption is $13.61 million per individual (indexed for inflation). This means the vast majority of estates owe no federal estate tax.

Estates exceeding the exemption are taxed at rates up to 40%
The exemption is portable between spouses — a surviving spouse can use the deceased spouse's unused exemption (via a timely-filed Form 706)
Note: The exemption is scheduled to be cut roughly in half after 2025 unless Congress acts

State estate taxes

Twelve states and the District of Columbia have their own estate taxes, with lower exemptions than the federal threshold (some as low as $1 million). Check your state's department of revenue.

Estate Tax Return (Form 706)

If the gross estate (all assets at fair market value at date of death) exceeds the federal exemption, Form 706 must be filed. It is also filed to elect portability of the estate tax exemption to the surviving spouse (recommended even for smaller estates).

Deadline: 9 months after date of death (extension available)
Prepared by the estate attorney or CPA

Inheritance Tax: Different from Estate Tax

Estate tax is paid by the estate itself, from estate assets, before distribution. Inheritance tax is paid by the person who inherits — not the estate. The US federal government does not have an inheritance tax. Six states currently impose inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Spouses are typically exempt from state inheritance taxes. Children and close relatives may pay reduced rates; more distant relatives or unrelated beneficiaries often pay higher rates. Check your specific state's rules.

The Stepped-Up Basis: The Most Valuable Tax Rule in Inheritance

When you inherit an asset (stocks, real estate, a business), its cost basis for capital gains tax purposes is "stepped up" to its fair market value on the date of death — regardless of what the deceased originally paid for it.

Example: Your parent bought stock for $10,000 in 1990. It was worth $200,000 when they died. You inherit it. Your basis is $200,000. If you sell it for $205,000, you owe capital gains tax only on the $5,000 gain — not on the $190,000 of appreciation that occurred during your parent's lifetime.

This is one of the most significant tax benefits in the US tax code and a key reason why many financial advisors recommend holding appreciated assets until death rather than gifting them during life.

Inherited Retirement Accounts (IRA, 401k)

Money in an inherited IRA or 401k is taxable as ordinary income when withdrawn. Unlike other inherited assets, retirement accounts do not receive a stepped-up basis — the income tax deferral continues until distribution.

Surviving spouse: Most flexibility — can roll into own IRA and delay RMDs
Non-spouse beneficiary: Under the SECURE Act 2.0, generally must withdraw the entire account within 10 years
Exceptions: Minor children, disabled individuals, and those within 10 years of the deceased's age have different rules

The tax consequences of inherited retirement account decisions can be substantial. Strongly recommend consulting a financial advisor before making any elections.

Capital Gains Tax When Selling Inherited Property

If you sell inherited property, you'll owe capital gains tax on any appreciation above the stepped-up basis. Key rules:

Inherited property is automatically treated as held "long-term" regardless of how long you've owned it — meaning it qualifies for the lower long-term capital gains tax rates
If you sell shortly after death, the gain is typically minimal (since the basis was stepped up to the date-of-death value)
If you live in the inherited home for 2 of the 5 years before selling, you may qualify for the personal residence exclusion ($250,000 for single filers, $500,000 for married couples)

Filing as a Surviving Spouse

In the year of your spouse's death, you can file a joint return (using "Married Filing Jointly" status). For the two following years, if you have a qualifying dependent child, you may file as a "Qualifying Surviving Spouse," which gives you access to the same tax rates as married filing jointly. After that, you file as single or head of household.

For the broader estate administration process, see our complete probate guide. For how specific assets are transferred, see our property and assets guide.