Let’s be real: losing a loved one is hard enough without worrying about taxes eating into their legacy. The good news? Florida has no inheritance tax—one of the most beneficiary-friendly states in the country. But here’s where it gets tricky: just because Florida doesn’t tax inheritances doesn’t mean you’re completely in the clear. Federal estate taxes, income taxes on inherited assets, and the rules around what you inherit can still create surprises if you’re not prepared.
This guide walks you through exactly what you need to know about inheritance tax in Florida, how it compares to other states (looking at you, Pennsylvania and its inheritance tax, and California’s rules), and the smart moves to protect what you’re inheriting.
Florida Has No Inheritance Tax (The Good News)
Here’s the bottom line: Florida does not have a state inheritance tax or a state estate tax. This is a massive advantage. When someone dies and leaves you money or property in Florida, you don’t owe the state of Florida a single dime based on that inheritance alone.
This is why so many wealthy families and retirees move to Florida. It’s not just about the beaches and sunshine—it’s about keeping more of what they’ve earned and what they’re passing down.
But let’s pump the brakes for a second. “No inheritance tax” doesn’t mean “no taxes at all.” It means Florida specifically doesn’t tax inheritances. The federal government, however, is a different story. And depending on what you inherit (retirement accounts, investment income, real estate), you might owe taxes on the income those assets generate.
Pro Tip: If you’re inheriting a significant amount, the fact that Florida has no state inheritance tax is a huge win—but you still need to understand federal rules and how to handle inherited assets smartly. Don’t let the state tax break make you complacent about federal taxes.
Federal Estate Tax Still Applies
Here’s where people get confused. Florida doesn’t tax inheritances, but the federal government does—if the estate is large enough.
In 2024, the federal estate tax exemption is $13.61 million per person (this number changes yearly). If someone dies and their total estate is worth less than that, there’s no federal estate tax owed. Their heirs inherit everything tax-free.
But if the estate exceeds $13.61 million? The federal government taxes the amount over that threshold at a steep rate—currently 40%. That’s a brutal hit.
Here’s the kicker: this exemption is set to drop to roughly $7 million per person in 2026 unless Congress extends it. If you’re inheriting from someone with a large estate, or you’re planning your own legacy, this is critical to know.
According to the IRS official guidance on estate and gift taxes, estates must file Form 706 (the federal estate tax return) within nine months of death if the estate exceeds the exemption. This is a complex form, and most families hire an estate attorney or CPA to handle it.
Warning: Don’t assume your inheritance is tax-free just because Florida has no inheritance tax. If the estate is over $13.61 million, federal taxes will apply. Plan accordingly or you could lose 40% of the amount over the threshold.
What You Actually Inherit Tax-Free
One of the biggest misconceptions is that you owe income tax on everything you inherit. That’s not how it works.
When you inherit money, property, stocks, or retirement accounts, you don’t immediately owe income tax on the inheritance itself. The inheritance is yours to keep, tax-free. This applies in Florida and everywhere else in the U.S.
What matters is what happens after you inherit:
- Cash or money: You inherit it tax-free. No income tax owed. If that money sits in a bank account and earns interest, you’ll owe tax on the interest (but not the original amount).
- Real estate: You inherit it tax-free. But if you sell it later, you might owe capital gains tax (more on this below).
- Stocks or investments: You inherit them tax-free. Future dividends or gains are taxable.
- Retirement accounts (IRAs, 401(k)s): You inherit them tax-free, but distributions are taxable as ordinary income. The SECURE Act changed the rules here significantly.
- Life insurance proceeds: Generally tax-free to beneficiaries. This is why life insurance is such a powerful planning tool.
The key: you’re not taxed on the inheritance. You’re taxed on the income the inherited assets generate going forward.
Income Tax on Inherited Assets
This is where most people trip up. Let’s say you inherit a rental property worth $500,000. You don’t owe tax on that $500,000 inheritance. But if that property generates $30,000 in rental income per year, you owe federal income tax on that $30,000.
Same logic applies to inherited investment accounts. You inherit the account tax-free. But if it earns dividends or interest, you owe tax on that income.
Here’s a real example: Your uncle leaves you his brokerage account with $200,000 in dividend-paying stocks. You inherit the account tax-free. But going forward, those stocks pay $5,000 per year in dividends. You owe federal income tax on that $5,000 annually.
The good news? You get a “step-up in basis” on most inherited assets. This is a massive tax break that most people don’t fully appreciate.
How Florida Compares to Other States
Florida is in an elite group of states with zero inheritance tax. But many states aren’t as generous.
States with inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, and Illinois all tax inheritances. The rates vary, but they typically range from 1% to 18% depending on your relationship to the deceased and the amount inherited.
Pennsylvania, for example, taxes inheritances at rates from 0% (direct descendants) to 15% (unrelated beneficiaries). If you inherit $100,000 from a non-relative in Pennsylvania, you could owe up to $15,000 in state tax. In Florida? Zero.
Pennsylvania’s inheritance tax rules are particularly complex because the tax depends on your relationship to the deceased. Spouses and children pay less; distant relatives and non-family pay more.
New York also has an estate tax, separate from the federal tax. New York’s exemption is $6.94 million (2024), which is much lower than the federal exemption. This means estates that wouldn’t owe federal tax might still owe New York state tax.
Florida’s zero inheritance tax and zero estate tax make it a haven for wealth transfer. This is one reason why so many wealthy retirees move to Florida—they’re protecting their legacy from state taxes.
Pro Tip: If you’re inheriting from someone who lived in a state with inheritance tax (like Pennsylvania or New Jersey), make sure the estate was properly handled. Some states allow tax planning strategies to reduce or eliminate the state tax bill. Talk to an estate attorney in that state.
The Step-Up in Basis (Your Secret Weapon)
This is the hidden gem of inheritance tax planning, and it deserves its own section because it’s so valuable.
When you inherit an asset, its tax basis is “stepped up” to its fair market value on the date of death. In English: if your grandmother bought Apple stock for $100 per share 30 years ago, and it’s worth $200 per share when she dies, your new basis is $200 per share. If you sell it immediately, you owe zero capital gains tax.
This is a massive advantage over inheriting assets while the person is alive. If your grandmother had given you the stock while alive, your basis would still be $100, and you’d owe capital gains tax on the $100 per share gain when you sell.
Real example: Your dad bought a house in 1990 for $150,000. It’s now worth $600,000. If he sells it while alive and you’re not on the deed, he owes capital gains tax on the $450,000 gain. But if he dies and you inherit it, your basis steps up to $600,000. You can sell it immediately and owe zero capital gains tax.
This step-up in basis applies to almost all inherited assets: real estate, stocks, bonds, mutual funds, business interests, and more. It doesn’t apply to retirement accounts (IRAs, 401(k)s) or certain other assets, but for most wealth, it’s a game-changer.
According to Investopedia’s explanation of step-up in basis, this provision saves American families billions in taxes every year. It’s one of the most valuable tax benefits in the entire code.
Warning: The step-up in basis is scheduled to be eliminated or significantly reduced after 2025 under current law. If you’re inheriting substantial assets, understand this benefit now—it might not exist in the future.
Smart Planning Strategies for Florida Residents
If you’re a Florida resident planning your estate, or you’re inheriting in Florida, here are the smart moves:
1. Maximize Your Federal Exemption
With the exemption at $13.61 million per person (and dropping to ~$7 million in 2026), married couples can use both exemptions to shelter up to $27.22 million from federal tax. But you have to plan for it. Many people die without a proper will or trust, and their families lose this opportunity.
Work with an estate attorney to create a plan that uses both spouses’ exemptions. This is especially important if one spouse has significantly more assets than the other.
2. Use Trusts to Protect Assets
A revocable living trust keeps your assets out of probate and gives you control during your lifetime. An irrevocable trust can remove assets from your taxable estate, reducing federal tax exposure. In Florida, trusts are particularly valuable because they provide privacy (unlike wills, which are public records) and allow for smooth asset transfer.
3. Life Insurance Strategy
Life insurance proceeds are tax-free to beneficiaries. But if you own the policy, the proceeds are included in your taxable estate. The solution? Use an Irrevocable Life Insurance Trust (ILIT) to own the policy. This removes the death benefit from your estate, saving significant federal tax.
4. Gifting During Your Lifetime
You can give away $18,000 per person per year (2024) without using any of your exemption. Married couples can give $36,000 per recipient per year. Over time, this removes assets from your taxable estate. It also lets you see your gifts benefit your family while you’re alive.
5. Portability Election
If you’re married, make sure your estate files the portability election on the first spouse’s death. This allows the surviving spouse to use the deceased spouse’s unused exemption. Without this election, you lose it forever.
6. Consider Your Retirement Accounts
Inherited IRAs and 401(k)s have special tax rules under the SECURE Act. Beneficiaries generally must withdraw all funds within 10 years. These withdrawals are taxable as ordinary income. Consider naming a charity as beneficiary of retirement accounts (charities don’t pay tax) and leaving other assets to family members.
Also, look into tax-sheltered annuities and other vehicles that can help protect retirement savings from taxation during your lifetime and at death.
7. Charitable Giving
If you’re charitably inclined, a Charitable Remainder Trust (CRT) or Donor Advised Fund (DAF) can provide an income tax deduction while supporting causes you care about. This reduces your taxable estate and generates tax savings during your lifetime.
Frequently Asked Questions
Does Florida have an inheritance tax?
– No. Florida has no state inheritance tax and no state estate tax. When you inherit money or property in Florida, you don’t owe the state any tax on the inheritance itself. However, you may owe federal estate tax if the deceased’s total estate exceeds $13.61 million (2024), and you’ll owe income tax on any income generated by inherited assets going forward.
Do I have to pay taxes on money I inherit?
– No, not on the inheritance itself. The money you inherit is yours tax-free. However, if that money sits in an account and earns interest, you owe tax on the interest. If you inherit a rental property and collect rent, you owe tax on the rental income. The key is understanding the difference between inheriting an asset (tax-free) and the income that asset generates (taxable).
What is the step-up in 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 death. This means if an asset appreciated significantly before you inherited it, you can sell it immediately and owe zero capital gains tax on the appreciation. This is one of the most valuable tax benefits in inheritance planning. However, this benefit is scheduled to change after 2025.
Will I owe federal tax on my inheritance?
– Only if the deceased’s total estate exceeds $13.61 million (2024). If the estate is smaller, there’s no federal estate tax, and you inherit everything tax-free. If the estate is larger, the amount over the exemption is taxed at 40%. This is why estate planning is so important for wealthy families.
How do I handle inherited retirement accounts like IRAs?
– Inherited IRAs have special rules under the SECURE Act. Most beneficiaries must withdraw all funds within 10 years. These withdrawals are taxable as ordinary income. The key is to plan the withdrawal strategy carefully to minimize your tax bill. Work with a CPA or financial advisor to create a withdrawal plan that spreads taxes over the 10-year period if possible.
Should I move to Florida to avoid inheritance tax?
– If you’re considering moving to Florida primarily for tax reasons, make sure you understand what you’re actually avoiding. Florida has no inheritance tax, which is great, but the federal estate tax is the bigger concern for most wealthy families. Moving to Florida helps with state taxes, but you still need proper federal estate planning. Also, make sure you establish Florida residency properly (driver’s license, voter registration, etc.) if tax avoidance is your goal.
What’s the difference between inheritance tax and estate tax?
– Inheritance tax is paid by the person receiving the inheritance (the beneficiary). Estate tax is paid by the estate itself before assets are distributed to beneficiaries. Florida has neither. However, the federal government has an estate tax on large estates. Some states (like New York and New Jersey) have both state inheritance and estate taxes, making them much more expensive for families.
Can I reduce my taxable estate while I’m still alive?
– Yes. You can give away up to $18,000 per person per year (2024) without using your exemption. You can also use an Irrevocable Life Insurance Trust to remove life insurance proceeds from your estate. You can fund a Charitable Remainder Trust. You can establish a family limited partnership to discount the value of assets you pass to family members. Work with an estate attorney to explore options that fit your situation.
What happens if I inherit property in another state?
– You may owe that state’s inheritance or estate tax, even if you live in Florida. For example, if you inherit property in Pennsylvania, Pennsylvania’s inheritance tax may apply. The state where the property is located (or where the deceased lived) determines which state taxes apply. This is why it’s important to understand the rules in any state where you have inherited property or where a deceased person lived.
Is life insurance included in my taxable estate?
– Yes, if you own the policy. The death benefit is included in your taxable estate, which could trigger federal estate tax. However, if an Irrevocable Life Insurance Trust (ILIT) owns the policy, the death benefit is excluded from your estate. This is a common strategy for wealthy families to provide liquidity for estate taxes while keeping the insurance proceeds out of the taxable estate.
What should I do if I’m inheriting a large sum?
– First, take a breath. Don’t make any major decisions immediately. Second, gather all the documents: the will, death certificate, and asset statements. Third, understand what you’re inheriting and what taxes might apply. Fourth, consult with a CPA or financial advisor to understand the tax implications and create a plan for managing the inherited assets. Finally, consider working with an estate attorney if there are complex assets or family dynamics involved.
