Inheriting assets can be a financial boost, but it often comes during a challenging time of loss, making it crucial to understand the tax implications. Tax laws on inheritance can be complex and intimidating, yet most people don’t need to worry about inheritance taxes like estate taxes—though other factors apply. In this article, the CPAs at Steward Ingram & Cooper, PLLC, including our tax consultants in the greater Raleigh area, break down what inheritance tax means for trusts, gifts, estates, property, and capital gains, helping you navigate potential taxes on your inheritance.
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Tax on Inheritance in NC: What You Need to Know
There is no inheritance tax in North Carolina. This means that beneficiaries are not required to pay tax on assets they inherit, making NC a favorable state for those receiving an inheritance.
However, there are other tax considerations to keep in mind:
- Estate Tax: North Carolina repealed its estate tax in 2013. Therefore, there is no state estate tax to be concerned with for deaths occurring after January 1, 2013. Estates of North Carolina residents and nonresidents who own property in North Carolina are subject to this rule.
- Federal Estate Tax: While North Carolina does not have a state estate tax, large estates might still be subject to the federal estate tax. Estates valued above a certain threshold (which is adjusted annually for inflation) may be liable for federal estate tax. In 2025, the federal estate tax exemption is expected to be adjusted for inflation from the 2024 amount of $13,610,000 per individual, with rates ranging from 18-40%. Check the latest IRS guidelines for the exact 2025 threshold.
- Income Tax on Inherited Assets: While there’s no inheritance tax per se, beneficiaries may still face income tax implications. For instance, if you inherit a retirement account or other income-generating asset, any income received from these assets might be subject to federal and state income tax.
- Property Tax: Inheriting real estate in North Carolina means taking over the responsibility for property taxes on that real estate. The value of the property at the time of the decedent’s death is typically used for tax purposes.
- No Inheritance Tax for Beneficiaries: It’s key to reiterate that beneficiaries in North Carolina do not pay a specific tax just for receiving an inheritance, regardless of their relationship to the deceased.
What is Tax on Inheritance?
Tax on inheritance, or more simply, inheritance tax, is a tax on money or property that you inherit imposed by some states. It is a state tax, not a federal tax. Inheritances are not considered income for federal tax purposes. Inheritance tax is levied on the assets from a deceased person’s estate that are received by an individual. Automobiles, property, and investments are included in the inherited assets that have a tax imposed. The recipient of the assets is responsible for paying the tax. Generally, the value of the inherited assets has to exceed a minimum amount before an inheritance tax is due.
As of 2025, six states have inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The inheritance tax is assessed by the state(s) in which the inheritor lives.
Understanding Trusts and Taxes: How Much Can You Inherit Without Paying Taxes?
Trusts are often used in estate planning as a means to manage how assets are passed on to beneficiaries. However, the relationship between revocable, irrevocable trusts, and taxes can be intricate. There are certain tax implications when you inherit a trust, and the rules can be complex. Generally, only the earnings of a trust are taxed, not the principal. So, how much can you inherit from a trust without paying taxes? It depends on the trust’s structure and the type of assets held within it.
Revocable Trusts
Revocable trusts do not typically provide tax advantages when it comes to inheritance tax. Since the grantor can alter the trust, the assets are still considered part of their estate.
Irrevocable Trusts
Irrevocable trusts may offer tax benefits. Once assets are placed in an irrevocable trust, they are no longer considered part of the grantor’s estate, which can potentially reduce the tax liability. This means you may inherit more from an irrevocable trust without paying taxes on the principal.
Is Tax on Inheritance Different from Estate Tax?
A tax on inheritance is not the same as an estate tax. An estate tax is levied on the estate before its assets are distributed, whereas an inheritance tax (where applicable) is imposed on the deceased’s beneficiaries after assets are distributed. The federal government taxes large estates directly but does not charge inheritance tax on those who receive assets from an estate. An estate can have estate taxes charged and income tax on earnings from the estate. Estate taxes are irrelevant to inheritance taxes. Through estate planning, you can employ strategies to reduce the amount of taxes owed on an estate.
How is Tax on Inheritance Calculated?
Understanding how tax on inheritance is calculated and when it comes into play is important for estate planning as well as for those who stand to inherit. If an inheritance tax is due, it is applied only to the part of an inheritance that exceeds an exemption amount. When the exemption amount is exceeded, the tax is typically assessed on a sliding basis.
What is the Estate Tax?
The estate tax is a federal tax that is applied to a person’s assets after their death. This tax is assessed on the fair market value of the assets at the date of death. Assets that are inherited by a surviving spouse are not subject to the federal estate tax because of the unlimited marital deduction.
In 2025, any estate worth less than the federal exemption (adjusted for inflation from $13.61 million in 2024) is exempt from the tax. For estates valued over that amount, the estate tax is paid before any inheritance is distributed, so while beneficiaries may not receive the full amount, they will not have to pay a separate tax on it.
The estate tax ranges between 18 and 40 percent and is dependent on the value of the estate over the exemption limit. For example, if the estate is worth $9,999 more than the exemption, an 18 percent tax will be levied only against the $9,999. However, assets totaling $1 million over the exemption would be taxed at 40 percent.
What is a Gift Tax and Does North Carolina Have One?
As stated earlier, an inheritance tax is a tax on the assets received from someone’s estate after they pass away. Gift tax, on the other hand, is potentially applicable to gifts given during a person’s lifetime. North Carolina does not have a gift tax. However, you may be assessed a gift tax at the federal level depending on the value of the gifts you provide. You don’t owe a gift tax until you exceed your lifetime gift and estate tax exemption, which is expected to be adjusted for inflation in 2025 from the 2024 amount of $13.61 million.
Federal Annual Gift Tax Exclusion
You can provide a certain amount to each individual without paying any tax on the gift. The annual gift exclusion for 2025 is expected to be adjusted for inflation from the 2024 amount of $18,000. Check the latest IRS guidelines for the exact 2025 amount.
If you happen to exceed the annual amount, you don’t need to worry. Our CPAs will help you in preparing the necessary paperwork to report the gifts that went above the limit. The IRS requires certain tax forms to keep up with the lifetime gift and estate tax exemption.
Annual Gift and Estate Tax Exemption
The annual gift and estate tax exemption is the value of the gifts (in dollars) that you can give away in your lifetime before you must pay an actual gift tax to the U.S. government. The amount can vary from year to year. The annual exclusion is the amount allowed each year without having to report it. When you exceed that amount in any given year, you go into the lifetime exemption.
Here is an example. If you give away $40,000 to one person in 2025, you have gone over the annual exclusion amount by $22,000 (assuming the 2025 exclusion remains close to $18,000). Let’s assume this is the first time you have exceeded the annual amount allowed. Now, you have to subtract that overage amount from your lifetime exemption. This calculation looks like this: $13.61 million (adjusted for 2025) – $22,000 = $13.588 million (adjusted). The result is the amount you have left to give away in your lifetime before paying taxes.
If the gift tax is applied at some point, the rate can be 40%. The rate depends on how much of the money exceeds your lifetime exemption.
2025 Federal Estate and Gift Tax Exemptions
The following table summarizes the federal estate and gift tax exemptions for 2025, based on expected adjustments for inflation:
| Tax Type | 2025 Exemption (Estimated) | Tax Rate |
|---|---|---|
| Federal Estate Tax | $13.61M (adjusted for inflation) | 18-40% |
| Lifetime Gift Tax | $13.61M (adjusted for inflation) | Up to 40% |
| Annual Gift Exclusion | $18,000 (adjusted for inflation) | N/A |
Note: Always confirm exact 2025 figures with the IRS.
Inheritance Tax on Property
An inheritance tax on property is a tax that may be levied on individuals who inherit real estate or other property from a deceased person. The rules and rates for inheritance tax can vary significantly depending on the jurisdiction. Individuals who inherit property in North Carolina, whether it’s real estate or other types of property, are not required to pay a tax on inheritance to the state.
Federal Taxes on Property Inheritance
While there is no state-level inheritance tax in North Carolina, other tax considerations may still apply, such as federal estate taxes for very large estates. The federal estate tax applies to the entire estate before the assets are distributed to the beneficiaries and only affects estates that exceed the 2025 exemption threshold, expected to be adjusted from $13,610,000 in 2024.
Capital Gains Taxes
The IRS applies a stepped-up basis to the property asset you inherit. This means that the base price of the asset is reset to its value on the day that you inherit it. By stepping up the cost basis, it is rare for heirs to pay significant taxes on inherited property.
For example:
- Let’s say that you inherit property from your grandparents and sell it immediately. Then you would owe no taxes on that asset. If a house was purchased by the decedent for $100,000 and it is worth $300,000 the day you inherit it, there is an appreciation of $200,000. At the moment you inherit it, even though the house has appreciated while your grandparents owned it, the IRS considers the house’s original cost basis stepped up to the current market value ($300,000).
- Now, let’s say you hold the house for a year and the price of the house goes up to $400,000 (+$100,000). When you sell the house, you owe taxes on the increase of $100,000 that occurred during the year you held it.
How to Reduce Estate Taxes
To minimize the amount of tax due on your estate after your death, consider these options:
- Spend it before your passing
- Provide monetary gifts below the gift tax threshold
- Leave it to a qualified charitable organization
- Create a trust for your heirs and beneficiaries
Frequently Asked Questions About Inheritance Tax in NC
Does North Carolina Have an Inheritance Tax?
No, North Carolina does not have an inheritance tax. Beneficiaries are not required to pay a state tax on assets they inherit.
How Much Can You Inherit from a Trust Without Paying Taxes?
The amount you can inherit from a trust without paying taxes depends on the trust’s structure. Generally, the principal of the trust is not taxed, but earnings may be subject to income tax. Irrevocable trusts can help reduce tax liability by removing assets from the grantor’s estate.
Are There Taxes on Inherited IRAs in 2025?
Yes, inherited IRAs may be taxable. Withdrawals from a traditional IRA are subject to ordinary income taxes, while Roth IRA withdrawals are typically tax-free if the account meets the five-year holding rule. Most non-spouse beneficiaries must withdraw the entire balance within 10 years under 2025 rules.
Protect Your Inheritance with Professional Tax Guidance
Navigating inheritance tax in NC, trusts, and 2025 IRA rules can be complex, but you don’t have to do it alone. At Steward Ingram & Cooper, PLLC, our CPAs in the greater Raleigh area are here to help you minimize taxes and maximize your inheritance with ethical, tailored strategies. Contact us today at (919) 872-0866 or fill out the form below to schedule a consultation and secure your financial future.
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