Inheritance Tax Texas: What Residents Need To Know

Inheritance can be a powerful way to preserve the legacy of loved ones while shaping the financial future of generations to come. However, the emotional weight of inheriting or passing on assets often mingles with practical concerns and hidden complexities. With changing regulations and the ripple effects of taxes on the wealth you receive or distribute, it’s more important than ever to maintain a clear, high-level perspective.

In this post, we’ll explore the core elements of inheritance and estate planning in the Lone Star State and beyond—offering insights that help you anticipate potential pitfalls without getting bogged down in every detail. Whether you’re preparing to pass on your life’s work or ensuring that a windfall remains in good hands, understanding these foundational concepts can empower you to act proactively and protect what matters most.

Inheritance Tax vs. Estate Tax: A Quick Overview

In an inheritance tax system, beneficiaries are responsible for taxes on assets they receive. In contrast, an estate tax ultimately targets the estate’s total value before shares go to heirs. The fundamental distinction lies in who bears the burden of payment: the individual inheriting the property or the estate as a whole.

Often, inheritance taxes incorporate tiered structures that consider the recipient’s familial connection to the decedent, granting exemptions or preferential rates to close relatives. Conversely, estate tax calculations rely on appraising the deceased’s total holdings, and any tax due is settled from those assets before beneficiaries receive their allotted portions.

Does Texas Have an Inheritance Tax?

Texas does not impose an inheritance tax, meaning beneficiaries of in-state assets generally have little to worry about on that front. It’s also important to remember that there is no federal inheritance tax either.

However, a state-level inheritance tax does apply to residents of the following locations:1

• Nebraska
• New Jersey
• Kentucky
• Maryland
• Pennsylvania

If you inherit property or funds from a state that does levy inheritance taxes, you may still face obligations even as a Texas resident. The original location of the asset can dictate the tax rules that apply, which means you might be required to pay out-of-state taxes. To avoid unexpected costs, you should review that state’s laws and consult professionals who can clarify how the inheritance tax might be assessed.

Please Note: Inheritance taxes in states where they apply can vary greatly (10 – 18%).2 

What About an Estate Tax?

Some Texans wonder if the state imposes a separate levy on large estates. Right now, there is no distinct Texas estate tax, meaning property and other valuables left behind are not specifically taxed at the state level. 

That said, the possibility of being subject to federal estate tax remains if an estate’s value surpasses certain thresholds. Ignoring federal obligations can lead to unwanted surprises. For this reason, it’s important to stay updated on current and evolving tax laws at both the federal and state levels.

Federal Tax Implications for Texans

When planning an estate in Texas, you should understand the broader federal framework that may apply. Even if your state does not impose additional inheritance or estate taxes, the federal government sets standards that can still impact you. 

Currently, the federal estate tax exemption provides a substantial shield against estate taxes for many families. However, individuals with particularly large estates may find themselves above this limit, resulting in federal taxes owed. In 2025, each individual will have a federal gift and estate tax exclusion limit of $13.99 million. Married couples may jointly exclude up to $27.98 million.3 The federal estate tax is progressive, starting around 18% and topping out near 40%, and it only applies to the estate value above the federal threshold.4

Gifts made during your lifetime are also subject to federal gift taxes. Still, two separate protections can help minimize your liability: the annual gift exclusion and the lifetime gift tax exemption. In 2025, each individual can give up to $19,000 per recipient without using any of their lifetime exemption or incurring a gift tax.5 

Any gifts above that amount generally count toward the same $13.99 million lifetime limit shared with the estate tax exemption, so managing both gift and estate strategies can be key in avoiding unnecessary tax obligations.

Please Note: Keep in mind that although today’s exemption limit is unusually high, it is expected to return to pre-TCJA parameters in 2026 once inflation adjustments are considered. At that time, the individual exemption could fall to approximately $7 million, while married couples might have a combined exemption near $14 million. Of course, these figures may shift if new legislative measures are adopted before then.6

Capital Gains Taxes on Inherited Property in Texas

If you choose to sell any property or assets you’ve inherited, you may be responsible for capital gains taxes. Thanks to the stepped-up basis rule, the asset’s cost basis is typically reset to its market value as of the date the original owner passed away. This reset can significantly lower the amount of capital gains tax due, especially if you sell not long after inheriting the asset.

Generally, if you hold an asset for less than a year, short-term capital gains tax rates apply. Once you surpass that 12-month mark, long-term capital gains rates take effect. Because many inherited assets are sold well after they are received, long-term capital gains rates often come into play. In Texas, there is no additional tax on capital gains, but federal taxes still apply. This means timing the sale can still be an effective strategy for optimizing your tax outcomes.

Please Note: Federal short-term capital gains taxes can range from 10% to 37%, while long-term capital gains taxes vary between 0% and 20%. Additionally, should your income be at a high enough level, you may also face a 3.8% net investment income tax (NIIT) that applies to both short and long-term capital gains.3

Property Taxes and Other State-Level Considerations

When you inherit property or assets, state-specific rules can extend beyond inheritance or estate taxes. You should also remember that different states handle property and income taxes differently, complicating multi-state inheritances. 

Below are key state-level considerations to keep in focus:

Property Reassessments: Inheriting real estate can trigger a reassessment of the property’s value, which might raise your annual property tax bill. Each county in Texas has its own appraisal district, and a new valuation could mean higher costs than the previous owner paid. Staying aware of your local requirements can help you budget appropriately. You’ll also want to review any exemptions or discounts you might qualify for after inheriting a home.

Income from Inherited Assets: If you inherit financial instruments or a business that generates income, note that Texas does not charge a state income tax on these earnings. However, such income might still be taxed at the federal level, depending on the type of asset and how it’s distributed. 

Other States’ Estate Taxes: Some individuals hold assets outside Texas in states where state inheritance taxes or estate taxes are the norm. Even if you live in Texas, the location of the asset can dictate tax obligations. This creates a scenario where you might owe taxes to that state, even if Texas itself does not require payment. Being aware of and monitoring the regulations in every relevant location can go a long way toward avoiding potential legal or financial issues.

Strategies to Minimize Potential Tax Liabilities

Smart estate planning involves more than just understanding current rules. Ultimately, the aim is to adopt methods that ease the cumulative tax responsibility, benefiting you and anyone who inherits your assets. 

Below are some popular strategies that Texans might find beneficial:

Using Gifting Strategies: Transferring assets through annual gift exclusions is one method to reduce the size of a taxable estate gradually. This approach lets you support loved ones financially while decreasing possible estate tax obligations later. Individuals with large amounts of wealth frequently use this tactic to pass on assets without exceeding gift allowances. Integrating these gifting techniques into a broader estate strategy can yield meaningful advantages immediately and over the long run.

Setting Up Trust Structures: Various trust vehicles, such as revocable living trusts or irrevocable life insurance trusts, can help maintain control over how and when beneficiaries receive assets. They may also offer tax advantages, including reducing estate size and protecting assets from creditors. If you own real estate or operate businesses across multi-state jurisdictions, creating a trust can be especially advantageous in managing and protecting those assets.

Charitable Contributions: If giving back is one of your priorities, making charitable donations or setting up a specialized entity (like a donor-advised fund) can help shrink the portion of your estate subject to taxes. The donated assets are often removed from your estate’s value, which may reduce potential estate taxes. 

Life Insurance Planning: Life insurance proceeds can serve as a financial cushion for heirs, covering possible estate taxes and other expenses. By placing a policy in an irrevocable life insurance trust (ILIT), you may keep the death benefit outside your estate’s taxable value. This allows your beneficiaries to receive the full amount without increasing your estate’s overall worth. Proper structuring is important, so professional input is generally recommended.

Business Succession Plans: A well-structured succession plan can minimize disruption and taxes for Texans who own closely held businesses. Approaches like family-limited partnerships (FLPs) or buy-sell agreements clarify how ownership will transfer, potentially reducing estate tax exposure. Such strategies also help maintain the company’s financial health during ownership transitions. 

Please Note: The strategies mentioned here are not your only options. You may benefit from exploring additional approaches—or even a combination of methods—since each individual’s situation differs.

Practical Steps When Inheriting Property or Assets in Texas

Gaining property or other valuables through inheritance can spark excitement and anxiety, particularly if you’re unfamiliar with the necessary administrative processes. Even though you may not face inheritance taxes in Texas, there are still practical considerations to manage right away. Gathering paperwork, seeking professional guidance, and deciding on sale or retention are all part of the process. 

Below are key steps to simplify and secure your newly acquired assets:

Assemble Documentation: Begin by collecting deeds, appraisals, financial statements, insurance policies, and any relevant estate documents. Having organized records will help you determine the fair market value of each asset and streamline any tax filings. This information is also invaluable if you decide to sell or transfer the property in the future. Don’t forget to keep digital backups to prevent loss.

Consider Timing of Any Sale: If you choose to sell inherited assets, whether real estate or investments, market conditions and tax considerations may influence your timing. Selling soon after inheriting could limit capital gains if the asset’s value hasn’t significantly appreciated. Alternatively, holding onto the asset might offer longer-term benefits, especially if its value is expected to rise.

Update Personal Estate Plans: Acquiring new assets may prompt a review of your own estate documents, such as wills, trusts, or beneficiary designations. Life changes, including the addition of significant property, can alter how you want your estate distributed later. Periodic reviews make sure your plans remain aligned with your current situation. This step is a good time to revisit insurance policies, retirement accounts, or other directives.

Seek a Variety of Professional Tax Advice: Early consultations with an experienced estate planning attorney, an accountant, and a financial advisor can help you handle inherited assets more smoothly. An attorney advises on legal structures, paperwork, and any disclaimers. An accountant addresses federal and state tax obligations, including deadlines and possible liabilities. A financial advisor shapes a strategy to incorporate your inheritance into broader financial goals. 

Putting It All Together and Next Steps

Navigating inheritance taxes in Texas isn’t always straightforward, especially when federal obligations and out-of-state property come into play. The good news is that a thoughtful plan can help you sidestep potential pitfalls and position your family for long-term security. By staying informed about applicable rules and leveraging strategies like gifting, trust structures, and timely property decisions, you can make the most of Texas’s favorable environment while still meeting any federal requirements.

Our financial advisory team is here to quarterback the entire process. We collaborate seamlessly with estate attorneys, tax professionals, and other specialists to ensure every angle is covered—from capital gains considerations to the nuances of multi-state assets. Whether you’re just starting or need to refine an existing plan, we’ll help you protect what you’ve built, minimize unnecessary tax burdens, and guide you toward decisions tailored to your unique goals.

If you’re ready to take the next step—or simply want a second opinion on your estate strategy—schedule a complimentary consultation with our team today. We’ll walk you through actionable steps to preserve your legacy for the people who matter most. Don’t leave your inheritance to chance; let us help you create a clear and confident path forward.

References: 

1. https://www.nerdwallet.com/article/taxes/inheritance-tax
2. https://www.bankrate.com/taxes/what-is-inheritance-tax/
3. https://www.morganlewis.com/pubs/2024/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2025#:~:text=In%20addition%2C%20the%20estate%20and,federal%20estate%20or%20gift%20tax.
4. https://www.investopedia.com/estate-tax-exemption-2021-definition-5114715
5. https://www.kiplinger.com/taxes/gift-tax-exclusion#:~:text=Gift%20tax%20limit%202025,typically%20filed%20in%20early%202026
6. https://www.schwab.com/learn/story/countdown-gift-and-estate-tax-exemptions