Is an Inheritance Taxable in Texas?

by Amanda McMullen
Inheritances may be subject to a variety of taxes, depending on what form they take.

Inheritances may be subject to a variety of taxes, depending on what form they take.

When lump sums of money or valuable property exchanges hands, one or both parties must typically pay tax. Inheritances, however, are not taxable at the federal level, and they count as income only in certain states. At the time of publication, Texas does not collect taxes on inherited property.

About Inheritance Tax

An inheritance tax is a tax imposed based on the value of property that passes from one person to another following the death of the original owner. States that require inheritance tax payments may require the taxes to come from either the estate or the recipient. In Texas, the term "inheritance tax" applies to taxes assessed against the deceased individual's estate, as opposed to the recipient of the inherited property.

Texas History

Prior to 2005, Texas required estates with net values that exceeded a certain amount to pay inheritance taxes. In general, estates that met the requirements to file a federal estate tax return also had to file a Texas estate tax return. The amount of the inheritance tax assessed was equal to the federal credit for state death taxes. However, Texas repealed its inheritance tax for estates with decedents who died on or after January 1, 2005. Texas doesn't impose any tax on the recipient of inherited property, either.

Other Taxes

Even though Texas doesn't collect inheritance taxes, some Texas estates may still owe federal estate taxes. As of publication, estates with gross values exceeding $5 million prior to any distributions or gifts must file an estate tax return and pay federal estate taxes. The estate's representative is responsible for filing any required federal tax forms. The Internal Revenue Service may collect estate tax from recipients of inherited property if the estate's representative fails to pay the estate's liability before making distributions.

Income Issues

Although inheritances are exempt from taxes in Texas, profits earned through the ownership or sale of inherited property may be taxable. For example, if you inherit a home and sell it, you may incur capital gains. In such situations, you must include the amount of income you earned on both your Texas and federal tax returns.

About the Author

Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.

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