Inheritance tax Washington is a critical topic for Washington state residents who are receiving assets from a loved one’s estate or planning to leave money behind. Unlike many states, Washington doesn’t have a traditional state inheritance tax, but federal estate taxes and other transfer taxes can still significantly impact your inheritance. Understanding these rules now can help you keep more money in your pocket and less going to the government.
Table of Contents
Does Washington Have Inheritance Tax?
Here’s the good news: Washington state does not have an inheritance tax. This puts Washington in a favorable position compared to states like New Jersey and Iowa, which do impose inheritance taxes on beneficiaries. If you’re inheriting money or property in Washington, you won’t owe state-level inheritance tax to the state government itself.
However—and this is important—the absence of a state inheritance tax doesn’t mean your inheritance is completely tax-free. Federal taxes and other considerations still apply, which we’ll cover in detail.
Federal Estate Tax Basics
While Washington has no state inheritance tax, the federal government does tax large estates. The federal estate tax applies to estates exceeding a certain threshold, and it’s one of the most misunderstood taxes in the country.
As of 2024, the federal estate tax exemption is $13.61 million per individual (or $27.22 million for married couples filing jointly). This means if your total estate is below these amounts, you won’t owe federal estate tax. However, this exemption is set to drop significantly in 2026 unless Congress extends current law—potentially falling to around $7 million per person.
For beneficiaries receiving inheritances, there’s typically no federal income tax owed on inherited assets themselves. The estate pays any federal estate tax before distributing assets to heirs. This is a crucial distinction: you’re not personally liable for federal estate tax as an heir (unless you’re the executor handling the estate).
Washington State Capital Gains Tax
Washington implemented a capital gains tax in 2022, which affects long-term capital gains exceeding $250,000 in a single year. Here’s where inheritance intersects with this tax: when you inherit appreciated assets (like real estate or stocks), you receive what’s called a “stepped-up basis.”
The stepped-up basis means the asset’s value is reset to its fair market value on the date of the owner’s death. If you immediately sell inherited property, you typically won’t owe capital gains tax because your basis is now the current value. However, if you hold the inherited asset and it appreciates further before you sell, any gains above that stepped-up basis could be subject to Washington’s capital gains tax.
This is actually a significant tax advantage for heirs in Washington. The IRS recognizes stepped-up basis, and it’s one of the most valuable tax benefits available to inheritors.
Who Pays Estate Taxes?
Let’s clarify the responsibility chain. If an estate owes federal estate tax, the estate itself pays the tax before distributing remaining assets to beneficiaries. The executor or personal representative of the estate handles this payment using estate funds.
Here’s what this means practically: if an estate is worth $15 million and owes $500,000 in federal estate tax, the estate pays that $500,000, and the remaining $14.5 million gets distributed to heirs. You as the beneficiary don’t personally write a check to the IRS.
However, if the estate doesn’t have enough liquid assets to cover the tax bill, the executor may need to sell assets—which could mean selling real estate or investments at potentially unfavorable times. This is why estate planning matters.
Exemptions and Thresholds
Understanding the numbers is essential for Washington residents planning estates or expecting significant inheritances.
2024 Federal Exemption: $13.61 million per person, $27.22 million per couple
2025 Federal Exemption: $13.99 million per person, $27.98 million per couple (indexed for inflation)
Post-2025 Projection: Expected to drop to approximately $7 million per person unless Congress acts
Additionally, lifetime gift tax exemptions are currently unified with the estate tax exemption. This means gifts you make during your lifetime count against your estate tax exemption. However, the 2025 annual gift tax exclusion allows you to gift $18,000 per person per year without affecting your lifetime exemption.
Strategies to Minimize Taxes
If you’re concerned about estate taxes—either as someone planning an estate or someone inheriting—several strategies can help minimize the tax burden.
Irrevocable Life Insurance Trusts (ILITs): Life insurance proceeds can be excluded from your taxable estate if properly structured in an ILIT. This can provide liquidity to pay any estate taxes without forcing the sale of family assets.
Charitable Giving: Donations to qualified charities reduce your taxable estate dollar-for-dollar. You can also use charitable remainder trusts to generate income while supporting causes you care about.
Portability Election: Married couples can elect to transfer unused exemptions between spouses, effectively doubling their combined exemption to $27.98 million in 2025.
Spousal Lifetime Access Trusts (SLATs): These trusts allow you to give assets to your spouse’s trust while maintaining some access and removing assets from your taxable estate.
Annual Gifting Strategy: By systematically gifting the annual exclusion amount ($18,000 in 2025) to family members each year, you can gradually transfer wealth tax-free over time.
Gift Tax Considerations
Gift tax and inheritance tax are different beasts, but they’re related. Understanding gift tax is crucial for Washington residents because strategic gifting during your lifetime can reduce your taxable estate.
You can give up to $18,000 per recipient per year (in 2025) without filing a gift tax return or using any of your lifetime exemption. Married couples can give $36,000 per recipient jointly. These amounts reset annually, so it’s possible to transfer significant wealth over time through strategic annual gifts.
For larger gifts, you can use your lifetime exemption. Any gifts above the annual exclusion that exceed your lifetime exemption would trigger gift tax (currently at 40% of the excess amount). However, with current high exemptions, most people won’t hit this threshold.
It’s worth noting that some states like New Jersey have inheritance taxes, so if you’re gifting to relatives in other states, they may face different tax consequences.
Retirement Accounts and Inheritance
Inheriting retirement accounts like IRAs, 401(k)s, or other qualified plans has special tax rules that differ from inheriting other assets. Tax-free retirement accounts present unique planning opportunities.
Under current rules (SECURE Act 2.0), most non-spouse beneficiaries must withdraw all inherited retirement account funds within 10 years of the account holder’s death. These withdrawals are subject to ordinary income tax at your tax bracket, which can create a significant tax bill if the account is large.
Spouses have more flexibility—they can roll inherited IRAs into their own IRAs and defer distributions until their own required minimum age.
This is why Roth conversions during the account holder’s lifetime can be valuable. Converting traditional IRA funds to a Roth IRA means paying taxes now at potentially lower rates, but then beneficiaries inherit tax-free growth.
State-Specific Planning Tips
Washington’s tax environment offers some unique advantages for estate planning, but there are specific strategies to maximize them.
No State Inheritance or Estate Tax: This is your biggest advantage. Unlike residents in states with inheritance taxes, Washington heirs keep more of what they inherit. If you’re planning to move to Washington in retirement, this tax advantage is real.
Capital Gains Tax Planning: While Washington has no inheritance tax, the capital gains tax on long-term gains over $250,000 annually is something to monitor. Plan the timing of inherited asset sales carefully to avoid bunching gains in a single year.
Stepped-Up Basis Strategy: Work with your estate planner to ensure beneficiaries understand their stepped-up basis in inherited assets. This is a powerful tax tool.
Community Property Advantage: Washington is a community property state, which means married couples can receive a stepped-up basis on 100% of community property assets (not just 50% as in common law states). This can be a significant advantage.
For residents near state borders (like those near Oregon or Idaho), understanding how multi-state planning affects your estate is important. Different states offer different tax benefits, and your domicile matters.
Frequently Asked Questions
Do I have to pay taxes on an inheritance in Washington state?
Washington state has no inheritance tax, so you won’t owe state tax on inherited assets. However, federal estate tax may have been paid by the estate if it exceeded $13.99 million (in 2025). You may also owe capital gains tax if you sell inherited appreciated assets and hold them long enough for gains to accumulate beyond the stepped-up basis.
What is the stepped-up basis, and how does it help me?
When you inherit an asset, its tax basis is “stepped up” to its fair market value on the date of the owner’s death. If you inherit stock worth $50,000 that was purchased for $10,000, your new basis is $50,000. If you sell immediately, you owe no capital gains tax. This is one of the most valuable tax benefits available to heirs.
How much can I inherit before paying federal taxes?
In 2025, the federal estate tax exemption is $13.99 million per person ($27.98 million for married couples). Estates below these thresholds owe no federal estate tax. However, this exemption is scheduled to drop in 2026 unless Congress extends current law.
What happens to my inherited IRA?
Under current rules, non-spouse beneficiaries must withdraw all inherited IRA funds within 10 years. These withdrawals are subject to ordinary income tax. Spouses can roll inherited IRAs into their own accounts and defer distributions. Consider consulting a tax professional about the best withdrawal strategy to minimize your tax bill.
Can I reduce my estate taxes through gifting?
Yes. You can give up to $18,000 per recipient annually (in 2025) without using your lifetime exemption. Married couples can give $36,000 per recipient. Over time, this strategy can significantly reduce your taxable estate. Larger gifts use your lifetime exemption but don’t trigger immediate gift tax.
Is Washington’s capital gains tax applied to inherited assets?
The capital gains tax applies to long-term gains exceeding $250,000 in a single year. Because inherited assets receive a stepped-up basis, you typically won’t owe capital gains tax on the inherited value itself. However, if you hold the asset and it appreciates further, gains beyond the stepped-up basis may be subject to the capital gains tax.
Bottom Line
Washington residents benefit from having no state-level inheritance tax, which puts them ahead of residents in many other states. However, federal estate taxes, capital gains taxes, and the complexities of inheriting retirement accounts still require careful planning.
The key takeaway: while you won’t pay Washington state inheritance tax, understanding federal rules and strategic planning can save your family thousands of dollars. Whether you’re inheriting soon or planning your own estate, working with a qualified tax professional or financial advisor is worth the investment. Tax laws change regularly, especially with the scheduled exemption reductions coming in 2026, so staying informed is essential.
Start by documenting your assets, understanding your stepped-up basis advantages, and considering whether gifting strategies make sense for your situation. The earlier you plan, the more options you have available.
