Why There’s No Inheritance Tax in Arizona
Learn about why there’s no inheritance tax in Arizona so you can optimize your estate planning and understand potential federal obligations.
Arizona doesn’t levy a state inheritance tax (a tax paid by heirs) and it doesn’t levy a separate state estate tax either. Families here plan primarily around federal rules and ordinary income tax, not a state “death tax.”
A Quick History of Inheritance Tax in Arizona
Arizona once had an inheritance tax—but not in modern times. In 1937, the Legislature repealed the state inheritance tax and replaced it with an estate tax designed to “pick up” a portion of the federal estate tax via a dollar-for-dollar federal credit. That structure meant Arizona’s tax didn’t increase a family’s total bill; it just redirected part of the federal tax to the state.
Fast-forward to 2001: Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which phased out the federal credit for state death taxes between 2002 and 2005. When that credit went to zero, state “pick-up” systems like Arizona’s effectively disappeared unless states passed new, freestanding taxes.
Arizona didn’t decouple or add a new levy. Instead, in 2006 the Legislature formally repealed the obsolete estate-tax provisions. Since then, the state has had no inheritance tax and no state estate tax on the books.
Today’s Rules (and What Still Matters)
Because there’s no inheritance tax in Arizona, your planning focus is federal law plus state income-tax treatment of ongoing income. If you inherit a traditional IRA and take distributions, or if a trust or estate continues to earn income after a death, that income can be taxable.
Also keep in mind: some other states still impose inheritance taxes. If you inherit from someone who lived (or owned certain property) in one of those states, their rules may apply to you even if you live in Arizona. It’s a quirk of inheritance taxes: they’re tied to the decedent’s state, not the heir’s.
Why Arizona Chose This Path
Federal Mechanics Changed. When EGTRRA eliminated the state death-tax credit, Arizona’s linked system went dormant; lawmakers then repealed it outright in 2006 rather than create a standalone tax.
Competitiveness. Many states moved away from estate/inheritance taxes after 2001. Staying neutral on inheritances helps Arizona compete for retirees and business owners considering where to live and invest.
Simplicity. One federal framework is easier for families and practitioners than navigating separate state thresholds, rates, and forms. Arizona’s Department of Revenue is clear: the state does not impose inheritance or gift taxes.
What No Inheritance Tax in Arizona Means For You
For Arizonans, tax planning really means: (a) understand federal estate and gift rules; (b) tune up your income-tax picture for inherited accounts and post-death income; and (c) watch for other-state inheritance taxes if the decedent lived outside Arizona. A solid plan—revocable trust to avoid probate, up-to-date beneficiary designations, and powers of attorney—keeps administration clean even when taxes aren’t the headline.
Arizona eliminated its inheritance tax in 1937 and later repealed its linked estate-tax provisions in 2006 after the federal credit disappeared. Today, there’s no inheritance tax in Arizona and no separate state estate tax—one big reason planning here is relatively straightforward. Focus on federal rules, Arizona income-tax treatment of inherited income, and (if relevant) the inheritance-tax rules of any non-Arizona state connected to your family.
(Learn More: Read about revocable trusts in Arizona versus Nevada.)