10 States Where Inheriting a Home Could Cost You More Than You Expect

Inheriting a family home might seem like a financial blessing, but unexpected taxes can quickly complicate the picture. Depending on where the property is located, heirs could face inheritance taxes, estate taxes, or expensive ownership obligations.

According to the Tax Foundation’s state tax analysis, 12 states and Washington, D.C., impose estate taxes, while five states collect inheritance taxes. Understanding the hidden costs of inheriting a home could prevent an expensive surprise when settling a loved one’s estate.

1. Pennsylvania: Children Can Face Inheritance Taxes

Pennsylvania is one of the few states where inheriting a home can trigger taxes even for children. Direct descendants generally face a 4.5% inheritance tax, while siblings pay 12%. Other beneficiaries may face a 15% rate, although surviving spouses are exempt.

A child inheriting a taxable $300,000 property could face approximately $13,500 in inheritance taxes. Families should investigate available deductions and payment deadlines before deciding whether to keep the property.

2. New Jersey: Your Relationship Determines The Tax

New Jersey eliminated its estate tax but continues collecting inheritance taxes from certain beneficiaries. Children, spouses, parents, and grandchildren generally inherit without paying this tax. However, siblings can face rates ranging from 11% to 16% on taxable inheritances exceeding $25,000.

Unrelated beneficiaries generally face rates of 15% to 16%, potentially creating substantial expenses. Anyone inheriting property from a friend or distant relative should calculate the potential tax before accepting ownership.

3. Nebraska: Even Smaller Estates Can Trigger Taxes

Nebraska’s inheritance tax rules depend heavily on the beneficiary’s relationship to the deceased. Immediate relatives generally pay 1% on taxable inheritances exceeding $100,000. More distant relatives face an 11% rate above $40,000, while unrelated beneficiaries face 15% above $25,000.

These thresholds mean inheriting a modest home could still produce a meaningful tax bill. Heirs should confirm property valuations and exemptions before making financial commitments.

4. Kentucky: Some Relatives Pay Nothing

Kentucky divides inheritance beneficiaries into categories with different tax obligations. Spouses, children, parents, grandchildren, and certain other close relatives generally qualify for exemptions. More distant relatives and unrelated beneficiaries can face inheritance tax rates reaching 16%.

Consequently, inheriting a house from an aunt could carry different costs than inheriting the same property from a parent. Reviewing beneficiary classifications with an estate attorney can prevent costly misunderstandings.

5. Maryland: Two Different Taxes Can Apply

Maryland stands out because it imposes both estate and inheritance taxes. Its estate tax generally applies when taxable estates exceed the state’s $5 million exemption. Certain beneficiaries also face a separate 10% inheritance tax, although close relatives generally qualify for exemptions.

As Creative Planning’s estate and inheritance tax analysis explains, state exemptions and beneficiary classifications can substantially change potential tax obligations. Families should examine the entire estate’s value rather than focusing exclusively on the inherited house.

6. Oregon: A Surprisingly Low Estate Tax Threshold

Oregon has one of the country’s lowest estate tax exemption thresholds. Estates exceeding $1 million may face state estate taxes ranging from 10% to 16%. A valuable home, retirement accounts, and other assets can push an estate beyond that threshold.

Importantly, crossing $1 million does not mean the entire estate automatically faces a 10% tax. Families should obtain professional valuations and review allowable deductions before calculating potential liabilities.

7. Massachusetts: Property Values Can Create Problems

Massachusetts generally applies its estate tax to estates exceeding $2 million. That threshold can become relevant when a home represents a substantial portion of someone’s wealth. For example, a $1.5 million property combined with $700,000 in other assets creates a $2.2 million estate.

Although Massachusetts provides relief that generally prevents tax on the first $2 million, additional estate value can generate liability. Executors should investigate available deductions and exemptions before selling inherited property to cover expenses.

8. Illinois: The Estate Tax Threshold Is Lower Than Federal Rules

Illinois maintains a $4 million estate tax exemption, substantially below the federal threshold. The federal estate and gift tax exemption is $15 million per individual in 2026, according to the Tax Foundation’s federal estate tax guide. Consequently, an estate might owe Illinois taxes without triggering federal estate taxes. Property appreciation and other investments can unexpectedly push families beyond the state threshold. Reviewing total assets and estate-planning documents can help beneficiaries anticipate potential obligations.

9. Minnesota: Retirement Savings Can Push Estates Higher

Minnesota generally applies estate taxes when estates exceed $3 million. An inherited property alone might not cross that threshold, but additional assets could change the calculation. Retirement accounts, investment portfolios, and other property may contribute to the taxable estate. State estate tax rates generally range from 13% to 16%, depending on taxable value. Families should calculate combined asset values instead of assuming a relatively modest house guarantees exemption.

10. Washington: Changing Estate Tax Rules Create Additional Risk

Washington can create significant estate tax exposure for larger estates. State tax rules changed in 2026, making the date of death especially important when calculating potential liability. The exemption, applicable tax brackets, and total estate value can determine whether an inherited property contributes to a substantial estate tax bill.

Kiplinger’s analysis of Washington’s estate tax changes provides additional details on the state’s changing rules. Families with valuable real estate should determine whether an estate has enough cash to cover taxes without forcing a quick property sale.

The Biggest Inheritance Mistake Is Ignoring The Details

The costs of inheriting a home extend far beyond estate and inheritance taxes. Property insurance, maintenance, outstanding mortgages, probate expenses, and changing property-tax assessments can strain a family’s budget. Heirs should also understand that keeping a property may produce very different costs than selling it, particularly when taxes, repairs, and insurance are considered together. Before accepting responsibility, request a professional valuation, investigate liens and debts, review state tax rules, and estimate at least one year of ownership expenses.

Would you keep an inherited family home if taxes and maintenance became overwhelming, or would you sell it? Share your experience and thoughts in the comments.

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Evan Morgan

Evan Morgan has been a full-time freelance writer and editor for 10+ years. When not working, he enjoys catching the latest true crime documentary or getting lost in a good book.