How much tax do you pay on inherited investments?
The good news is Florida does not have a separate state inheritance tax. Even further, heirs and beneficiaries in Florida do not pay income tax on any monies received from an estate because inherited property does not count as income for Federal income tax purposes (and Florida does not have a separate income tax).
Capital gains taxes apply to inheritances when the beneficiary decides to sell any of the assets they've inherited. For example, if a grandparent passes away and leaves you $100,000 worth of stock and you later sell it for $150,000, you'll be subject to capital gains tax on the $50,000 gain.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.
Gifting Your Money And Assets
The most direct way to minimize inheritance tax is to start gifting your heirs money annually while you're still alive. Take advantage of the current gift tax exclusion of $17,000 per year per person (as of 2023). This is a quick way to transfer non-taxable cash or assets to heirs.
Inherited Stock and Estate Planning
Because heirs will not have to pay capital gains taxes on stock that are unsold at the time of a decedent's death, benefactors should resist the urge to sell off the equities they plan to bequeath to their heirs during their living years.
If you inherited stocks, mutual funds or other investments in a taxable account, you'll be able to take advantage of a generous tax break known as a step-up in basis. The cost basis for taxable assets, such as stocks and mutual funds, is “stepped up” to the investment's value on the day of the original owner's death.
As a beneficiary, you may be required to pay taxes on your inherited assets in the future. It depends on the types of accounts you receive and what you do with those accounts. Taxable Accounts (Brokerages/Trusts) – Each year, the income you receive from your investments (e.g., dividends and interest) is taxable to you.
In some situations, you may not have an immediate tax liability. However, if the property you receive as a bequest (i.e., inherited property) produces income such as interest, dividends, or rents, your inherited property is taxable on the income tax return to whomever inherited the property.
Remember, the trust fund loophole lets you transfer your appreciated assets to your heirs without paying capital gains tax on the increased asset amount. That's because inherited assets get a step-up in basis.
Even if you don't sell the shares, if you receive dividends from the shares you've inherited, you will be liable for income tax on that income.
Does inherited stock count as income?
You don't need to worry about paying taxes on inherited stocks held within an inherited IRA or 401(k) account. These accounts are tax-deferred, meaning that what happens in the account is not subject to tax purposes. The only taxable event in a pre-tax IRA or 401(k) occurs when you withdraw money from the account.
If the executor files an estate tax return, they could use an alternate valuation date of up to 6 months from the date of death. When you sell an inherited asset for more than the stepped-up cost basis, it would be counted as a long-term capital gain for tax purposes.

Rate | Single | Married Filing Separately |
---|---|---|
0% | $0 – $44,625 | $0 – $44,625 |
15% | $44,626 – $492,300 | $44,626 – $276,900 |
20% | $492,301+ | $276,901+ |
There is no federal inheritance tax and only six states levy the tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
The states with no state estate tax as of mid-2023, are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, ...
Of the six states with inheritance taxes, Kentucky and New Jersey have the highest top rate of 16 percent. Iowa is phasing out its inheritance tax, with full repeal scheduled for 2025, with the tax's top rate at 6 percent in 2023. All six states exempt spouses, and some fully or partially exempt immediate relatives.
Inheritance isn't typically considered income, but certain types of assets you inherit may have tax implications. You may have to pay taxes when you take the distributions from an inherited retirement account or when you sell inherited real estate or stocks.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
If you receive your inheritance in the form of stocks, you have the option to hold the investments or sell the stock to liquidate the assets. From there, a broker can help you sell the stock either in full or in part. An attorney can also help provide guidance in this process by helping you understand your options.
When you inherit investments, you don't inherit them at their cost basis (what the original investor paid for them). Their value on the day they transfer to you is (for income tax purposes) your cost. In most cases, that “cost” is higher than the original purchase price. It's stepped up.
Do I have to pay taxes on money received as a beneficiary?
Beneficiaries of an inheritance in California typically do not have to pay income taxes on the inherited assets. That is because inherited assets are generally not taxable income for individual beneficiaries.
In the context of an inheritance, if you received property as part of the inheritance and then sold it, the 1099-S would report the gross proceeds from that sale. Inheritances themselves are not considered taxable income for federal tax purposes, and thus, the inheritance amount is not taxed as income to you.
Inheriting $100,000 or more is often considered sizable. This sum of money is significant, and it's essential to manage it wisely to meet your financial goals. A wealth manager or financial advisor can help you navigate how to approach this.
The Executor must submit the Will and other important documents to the probate court, and then pay any outstanding bills and taxes. Once that's done, you can expect to receive a disbursement of financial assets and transfer of ownership of any tangible assets.
Estate taxes and inheritance taxes are often discussed together, but they are different: Inheritance tax is paid by a beneficiary, while estate tax is paid out of the deceased's estate before any remaining money, property or other assets are distributed.