Do beneficiaries pay taxes on estate distributions?

Under U.S. federal law, inheritances themselves are generally not income‑taxable to the beneficiary. You typically do not report a lump‑sum inheritance of cash or property as ordinary income. However, beneficiaries may owe income tax on:

• Retirement account distributions (traditional IRA, 401(k)),
• Items of “income in respect of a decedent” (unpaid wages, deferred comp, etc.),
• Future income the inherited assets produce (interest, dividends, rents, capital gains).
• Estate tax, if due, is paid by the estate before distributions. Some states have their own inheritance tax that is charged to beneficiaries based on their relationship to the decedent and the amount received.

Learn more about our Estate Tax appraisals.