Inheritance Tax & Capital Gains Rules by State

• Inheritance tax is paid by the heirs who receive property. Only a few states (like Pennsylvania, New Jersey, and Kentucky) still impose it.

• Estate tax is paid by the estate itself before distribution. States like Connecticut, Massachusetts, Minnesota, New York, and Illinois still levy an estate tax above certain thresholds.

Usually not right away. Federal law provides a “stepped-up basis”—the property’s value is reset to its fair market value at the date of the decedent’s death. If you sell the home soon after inheriting, there may be little or no capital gains tax.

If the property appreciates after you inherit it, you may owe capital gains tax on the difference between the stepped-up basis and the later sale price.

As of 2025:

• Inheritance tax states: Kentucky, New Jersey, Pennsylvania (rates vary by heir relationship).

• Estate tax states (with exemptions): Connecticut, Massachusetts, Minnesota, New York, Illinois.

Not usually. The property must pass through probate unless it was held in trust or jointly with survivorship rights. However, investors like Aldric Property Solutions often buy probate properties with court approval, helping heirs get liquidity faster.