Nebraska inheritance tax can feel confusing at first glance. It’s a state-level tax on what certain beneficiaries receive when someone who lived in (or owned property in) Nebraska passes. Nebraska is one of only a handful of states that still impose an inheritance tax at all. (And Nebraska doesn’t impose an estate tax.)
Nebraska inheritance tax is a tax on beneficiaries, not by the estate itself. The rate and exemption depend on how closely the beneficiary was related to the person who passed.
As of 2023, most beneficiaries fall into three main classes:
Class 1 – Immediate family and siblings
Parents, grandparents, children (including adopted children), grandchildren, and siblings. Each person receives a $100,000 exemption. Anything above that faces a tax of 1%.
Class 2 – Certain relatives
Aunts, uncles, nieces, nephews, their descendants, and their spouses. Each person gets a $40,000 exemption, and amounts above that face a tax of 11%.
Class 3 – Everyone else
Friends, neighbors, employees, and other non-relatives. Each beneficiary receives a $25,000 exemption, and amounts above that face a tax of 15%.
Nebraska inheritance tax generally applies to all property owned by a Nebraska resident at passing and to Nebraska real estate or tangible personal property owned by nonresidents. Tax is usually due within one year of the date of passing. If someone doesn’t pay on time, Nebraska law can add interest and penalties on the unpaid amount.
Key Exemptions
Not every transfer is subject to Nebraska inheritance tax. Several important categories are fully exempt:
- Property passing to a surviving spouse
- Transfers to qualified charities or governments
- Certain allowances and exempt property received by immediate family under Nebraska probate rules
- Real estate and tangible personal property located outside Nebraska
- Many life insurance proceeds paid directly to a named beneficiary rather than to the estate
Additionally, gifts made more than three years before someone’s passing are generally outside the Nebraska inheritance tax net, with special rules for smaller gifts that don’t require a federal gift tax return.
This state tax is separate from the federal estate tax, which only applies to very large estates (in the multi-million-dollar range).
A Short History of the Nebraska Inheritance Tax
The Nebraska inheritance tax has a surprisingly long history. Nebraska first adopted an inheritance tax in 1901, long before the state had a sales or income tax and before there was a federal income tax. Lawmakers modeled the early version on Illinois’s progressive system.
From the start, Nebraska’s approach was unusual because the tax has always been collected by counties, making it a local revenue source rather than a pure state-level tax. Even after the state later eliminated its separate state estate tax, the county-level Nebraska inheritance tax stayed in place.
Originally, the exemption for many heirs was just $10,000 in 1901. Analysts have noted that if that exemption had been adjusted for inflation, property wouldn’t face inheritance tax until it was worth roughly $300,000 or more in today’s dollars.
For decades, the basic structure changed very little. By 2020, the state had some of the highest effective inheritance tax rates in the country, with distant relatives and non-relatives facing rates up to 18% on amounts above relatively small exemptions.
That pressure led to a formal legislative study (LR415) in 2020 and, ultimately, to LB310, passed in 2022. LB310 raised exemption amounts for each class of beneficiary and lowered the tax rates for more distant heirs, with changes taking effect January 1, 2023.
Lawmakers continue to debate the future of Nebraska inheritance tax. Recent proposals such as LB468 seek to reduce rates further and adjust county revenues in other ways, reflecting ongoing questions about fairness, local funding, and property tax relief.
(Read More: Learn about revocable trusts in Nebraska versus Nevada and the cost of probate in Nebraska.)
Sources
- Nebraska Statutes (§ 30-2302, § 30-2306, § 30-2302, § 30-2306, § 30-2304)