What to Do When You Receive an Inheritance

Generally, no. An inheritance is not taxable income and you do not report it. Federal estate tax only applies above $15,000,00026 USC 2001(c), 2010; P.L. 119-21 §70106Verified Jul 13, 2026View source, and it is the estate's bill, not yours. Three real exceptions: distributions from an inherited retirement account are ordinary income when you take them; income the assets go on to produce (interest, dividends, rent) is taxed to you like any other income; and 5 states levy an inheritance tax directly on beneficiaries, usually at rates that depend on how closely related you were. Check what your state does.

When you inherit an asset, your cost basis is reset to fair market value on the date of death26 USC § 1014Verified Jul 13, 2026View source — not what the deceased originally paid. If your parent bought stock for $10,000 and it was worth $100,000 the day they died, you inherit it at $100,000; sell at $100,000 and you owe no capital gains at all. Thirty years of appreciation vanishes from the tax base. This is the single largest tax break most families ever receive, and claiming it requires one thing: a date-of-death valuation, obtained before you sell. Estimate yours with the step-up basis calculator.

Don't commingle it. Open a separate account in your name alone, keep records showing the source, and don't deposit it into joint accounts or use it to buy jointly-titled property. Once it's mixed, it's hard to unmix.

It depends on when the original owner died and your relationship to them. Spouses have the most flexibility. Non-spouse beneficiaries who inherited after 2019 generally must empty the account within 10 years. Miss the deadlines and you'll owe penalties.

Usually, yes — if you want them to avoid probate when you die. But think before you retitle. Some inherited assets (like an inherited IRA) can't go into a trust. Others may lose creditor or divorce protection if retitled incorrectly. Know what you have before you move it.