Oregon Inheritance Tax: The Essential Guide for Smart Planning

Let’s be real: inheriting money or property should feel like a blessing, not a tax nightmare. Yet here you are, wondering if Oregon inheritance tax is going to eat into what someone left you. The good news? Oregon doesn’t have an inheritance tax—but that doesn’t mean you’re in the clear. There are other taxes and planning moves that matter, and understanding them now could save your family thousands.

If you’re dealing with an estate in Oregon, or you’re planning ahead to protect your heirs, this guide walks you through what actually applies, what doesn’t, and how to stay smart about it.

Does Oregon Have an Inheritance Tax? (The Short Answer)

No. Oregon does not have an inheritance tax. Period. Your heirs won’t owe Oregon state income tax on money or property they inherit from you. That’s a huge win compared to states like Washington or Iowa, which do tax inheritances.

But here’s the catch that trips people up: no Oregon inheritance tax doesn’t mean zero taxes on your estate. It means the wrong taxes apply instead, and those can actually be worse.

Think of it like this: Oregon didn’t charge you a toll on one road, but you still have to pay tolls on every other route. The destination (your heirs getting money) is the same, but the path matters.

If your estate is small to moderate—under $13.61 million in 2024 (the federal exemption)—your heirs likely won’t owe anything at all. But if you’re wealthier, or if you own real estate that’s appreciated significantly, the federal estate tax and capital gains tax become your real headaches.

Federal Estate Tax vs. Oregon Inheritance Tax: What’s the Difference?

This is where most people get confused. Let me untangle it.

Inheritance tax: Tax on what the heir receives. The beneficiary pays it.

Estate tax: Tax on the total value of the estate before it’s divided. The estate pays it (or the heirs, indirectly).

Oregon has neither. But the federal government has an estate tax, and that’s what can hurt.

The federal estate tax applies to estates over $13.61 million (2024). If your estate exceeds that, the IRS takes 40% of everything above the threshold. That’s not a typo—40%. A $15 million estate owes $560,000 in federal tax.

Here’s the scary part: that exemption drops to $7 million in 2026 unless Congress acts. So if you’re sitting on a $10 million estate, you might be fine today but exposed in two years.

Oregon doesn’t add a state layer on top of that, which is why Oregon is actually a decent place to retire if you have wealth. Compare that to California, which has different income tax rules for beneficiaries, or states like Washington that have their own estate taxes.

Pro Tip: If you’re an Oregon resident with a large estate, you’re already ahead of the game compared to most states. But don’t get complacent—federal tax is still a monster, and you need a plan.

What Do Heirs Actually Owe When They Inherit in Oregon?

Your heirs inherit your stuff. They don’t owe Oregon inheritance tax. But they might owe other taxes depending on what they inherited and what they do with it.

Cash or bank accounts: No tax. They inherit it tax-free. Done.

Retirement accounts (IRAs, 401(k)s): This is tricky. They inherit the account, but when they withdraw money, they owe income tax on the distributions. The IRS changed the rules in 2023—most non-spouse beneficiaries now have to drain inherited retirement accounts within 10 years. That creates a tax bomb if they’re not careful. They need to plan withdrawals strategically to avoid jumping into a higher tax bracket.

Investment accounts: If the account had gains, those gains are taxable to the heir when they sell. But here’s the silver lining: they get a “step-up in basis.” More on that in a moment.

Real estate: No tax on inheriting it. But if they sell it, capital gains tax applies—unless they get lucky with the step-up.

Business interests: Inherited businesses aren’t taxed on inheritance, but if the heir sells or the business generates income, they’ll owe income tax on that income.

The bottom line: Oregon doesn’t tax the inheritance itself, but the IRS taxes what your heirs do with it afterward.

Capital Gains Tax on Inherited Property: The Step-Up Blessing

Here’s one of the few tax breaks that actually works in your favor.

Imagine your parent bought a house in 1990 for $150,000. It’s now worth $600,000. They pass away and leave it to you. You inherit it, and the IRS says: “Okay, for tax purposes, you inherited it at $600,000, not $150,000.”

That’s the step-up in basis. Your cost basis resets to the fair market value on the date of death.

If you immediately sell that house for $600,000, you owe zero capital gains tax. The entire $450,000 gain vanishes. That’s huge.

But if you hold it for two years and sell for $700,000, you only owe capital gains tax on the $100,000 gain (the difference between your stepped-up basis and the sale price). Long-term capital gains rates are 0%, 15%, or 20% depending on your income—way better than ordinary income tax rates.

This is why timing matters. If you inherit appreciated property, understand the step-up before you sell. Use a capital gains calculator to model different sale scenarios.

However, there’s a catch: the step-up is only for federal tax purposes. Some states tax inherited property differently. Oregon doesn’t layer on extra tax here, which is another win.

Warning: The step-up in basis is NOT automatic. Your executor needs to document the fair market value of inherited assets on the date of death. If you don’t have that appraisal, the IRS could challenge your basis later. Get it in writing.

Income Tax on Inherited Assets: The Ongoing Tax

Inheritance itself isn’t taxed in Oregon, but income generated by inherited assets is.

Let’s say you inherit a rental property. The rental income is taxable to you. You’ll owe federal income tax on it (and Oregon income tax, since Oregon has a state income tax). Same with inherited dividend-paying stocks or bonds.

Inherited IRAs are the worst offender. If you inherit a traditional IRA, every dollar you withdraw is taxable income. If you inherit a Roth IRA, withdrawals are tax-free (that’s the beauty of Roth), but you still have to drain it within 10 years under the new rules.

Oregon’s state income tax rate tops out at 9.9% on high earners. So if you inherit an IRA and withdraw $50,000 in a single year, you could owe $4,950 in Oregon state tax alone—plus federal tax on top of that.

This is why inherited retirement accounts need a withdrawal strategy. Talk to a tax pro before you take any money out. You might want to spread withdrawals across multiple years to stay in a lower tax bracket.

Here’s a real-world example: You inherit a $300,000 traditional IRA. If you withdraw it all in year one, you might owe $90,000+ in combined federal and state taxes. If you spread it over 10 years, you might owe $60,000 total. That’s a $30,000 difference just from timing.

Smart Oregon Estate Planning Moves to Minimize Taxes

Oregon doesn’t have an inheritance tax, but that doesn’t mean you should skip planning. Here’s what actually works.

1. Use Your Federal Exemption

In 2024, you can leave $13.61 million to heirs tax-free. That’s per person—married couples can double it to $27.22 million. If your estate is under that, you might not need fancy strategies. But document it. File an estate tax return (Form 706) even if you don’t owe tax. It locks in your basis for inherited property and protects your heirs from IRS audits later.

If you’re married, leave everything to your spouse. No federal estate tax on spousal transfers—ever. Your spouse can then leave the combined estate to your kids. This is called “portability” and it’s powerful. But you have to file Form 706 to make it work.

Oregon allows revocable living trusts. You fund it during your lifetime, and when you die, assets pass to your heirs without probate. This saves time, keeps your estate private (probate is public), and avoids probate fees. No tax savings directly, but it reduces costs and headaches.

You can give $18,000 per person per year (2024) tax-free. Married couples can give $36,000 per person. Over 10 years, a couple could gift $360,000 per child with zero gift tax. This shrinks your taxable estate and gets money to heirs while you’re alive to see them enjoy it.

Life insurance proceeds are generally not taxable income to heirs, but they’re included in your taxable estate if you own the policy. Put the policy in an ILIT, and the death benefit passes to heirs outside your taxable estate. For a $1 million policy, that could save $400,000 in federal tax.

If you’re charitably inclined, a CRT lets you donate appreciated property to charity, get an income stream for life, and get a tax deduction. You avoid capital gains tax on the appreciated property, and your heirs still get what’s left. It’s complex, but powerful for high-net-worth folks.

Pro Tip: Oregon doesn’t have an inheritance tax, but it does have income tax. If you’re planning to retire in Oregon or leave assets to heirs in Oregon, factor in the 9.9% top income tax rate on any income those assets generate. That’s higher than many states, so it affects inherited rental properties, dividend stocks, and retirement accounts.

How Oregon Compares to Neighboring States

Oregon is actually in a sweet spot. Let’s compare.

Oregon: No inheritance tax. No estate tax. 9.9% top income tax rate.

Washington: No income tax (huge advantage), but starting in 2025, Washington has an estate tax on estates over $2.193 million. That’s aggressive and catches way more people than the federal exemption.

California: No inheritance or estate tax, but 13.3% top income tax (the highest in the nation). Inherited income gets taxed at those rates.

Idaho: No inheritance or estate tax. No income tax on retirement income. Very friendly for retirees.

The takeaway: Oregon is better than California on income tax (9.9% vs. 13.3%), and better than Washington on estate tax (no state estate tax). But if you’re wealthy, Washington’s new estate tax is a curveball—it’s lower than Oregon’s income tax rate on inherited income, but it hits estates sooner.

If you’re on the Oregon-Washington border, this matters. Same with the Oregon-California line.

Frequently Asked Questions

Does Oregon have an inheritance tax?

– No. Oregon does not have a state inheritance tax. Your heirs will not owe Oregon tax on money or property they inherit from you. However, they may owe federal estate tax if your estate is very large, and they’ll owe income tax on any income the inherited assets generate.

What is the Oregon estate tax?

– Oregon does not have a state estate tax. Only the federal government levies an estate tax, and it only applies to estates exceeding $13.61 million in 2024 (dropping to $7 million in 2026 unless Congress changes the law). Oregon residents with smaller estates don’t owe any estate tax, state or federal.

Do heirs pay taxes on inherited money in Oregon?

– Heirs do not pay Oregon inheritance tax on inherited money itself. However, if the inherited money is in a retirement account like an IRA, they’ll owe federal and Oregon income tax when they withdraw it. If they inherit investment accounts with gains, they get a step-up in basis, so they avoid capital gains tax on the appreciation that occurred before inheritance.

What is the step-up in basis, and does it apply in Oregon?

– The step-up in basis is a federal rule that resets the cost basis of inherited assets to their fair market value on the date of death. This means heirs avoid capital gains tax on appreciation that occurred before they inherited the asset. Yes, it applies in Oregon. If you inherit a house worth $600,000 that was purchased for $150,000, your basis is $600,000, and you owe zero capital gains tax if you sell immediately.

Do I need to file an estate tax return in Oregon?

– Oregon does not require a state estate tax return because Oregon has no state estate tax. However, if your federal taxable estate exceeds $13.61 million (2024), your executor must file a federal Form 706 (U.S. Estate Tax Return) with the IRS. Even if you don’t owe federal tax, filing Form 706 can lock in your basis for inherited property and protect heirs from future IRS audits.

What taxes do heirs owe on inherited retirement accounts?

– Heirs who inherit traditional IRAs or 401(k)s must pay federal and Oregon income tax on distributions they take from those accounts. Oregon’s top income tax rate is 9.9%, so the combined federal-plus-state rate can exceed 40%. Under the SECURE Act rules (effective 2023), most non-spouse beneficiaries must drain inherited retirement accounts within 10 years. Strategic withdrawal planning can minimize the tax hit.

Is inherited real estate taxed in Oregon?

– Inheriting real estate is not taxed in Oregon. However, if you inherit real estate and later sell it, capital gains tax applies to any appreciation after you inherited it. You benefit from the step-up in basis on the value at the date of death, so you only owe capital gains tax on gains after that date. If you rent out inherited property, the rental income is taxable.

Can I gift money to avoid Oregon inheritance tax?

– Since Oregon has no inheritance tax, gifting doesn’t help you avoid Oregon tax specifically. However, gifting can reduce your federal taxable estate. You can gift $18,000 per person per year (2024) without using your federal exemption. Over time, this strategy reduces the size of your estate and lowers federal estate tax exposure for your heirs.

What’s the difference between Oregon inheritance tax and federal estate tax?

– Oregon has no state inheritance tax or state estate tax. The federal government levies an estate tax on estates exceeding $13.61 million (2024). An inheritance tax would be paid by heirs on what they receive; an estate tax is paid by the estate on the total value before distribution. Oregon has neither, but federal estate tax still applies to large estates.

How does Oregon compare to Washington on inheritance and estate taxes?

– Oregon has no inheritance tax or state estate tax. Washington also has no inheritance tax, but starting in 2025, Washington enacted a state estate tax on estates over $2.193 million (with a 20% top rate). So while Washington has no income tax, it now has an aggressive estate tax that catches more people than Oregon’s exposure. For most Oregonians, Oregon is actually more favorable.

Do I need a trust to avoid Oregon inheritance tax?

– Since Oregon has no inheritance tax, a trust won’t help you avoid that specific tax. However, a revocable living trust can help you avoid probate, keep your estate private, and make it easier for heirs to access assets after you die. A trust also helps if you own property in multiple states.

What happens if I die without a will in Oregon?

– If you die without a will in Oregon, your estate goes through probate, and Oregon’s intestacy laws determine who inherits. Your spouse and children typically inherit first. Oregon has no inheritance tax, so your heirs won’t owe Oregon tax on what they receive, but they’ll have to go through the probate process, which takes time and costs money. A will or trust avoids this.