Florida Inheritance Tax and Estate Tax

Florida does not have an inheritance tax or an estate tax. The Florida Constitution prohibits the state legislature from imposing either tax, and only a constitutional amendment approved by 60% of voters could change this. Florida residents who inherit property from a Florida decedent owe no state tax on the inheritance regardless of its value.

The federal estate tax still applies to very large estates. Under the One Big Beautiful Bill Act signed into law on July 4, 2025, the federal estate tax exemption is $15 million per person ($30 million for married couples) beginning January 1, 2026. The exemption is indexed for inflation and has no sunset provision. The top federal estate tax rate remains 40%.

Inheritance Tax vs. Estate Tax

An inheritance tax and an estate tax are different. An estate tax is paid by the deceased person’s estate before assets are distributed to beneficiaries. An inheritance tax is paid by the individual who receives the inheritance after distribution. The distinction matters because the person bearing the tax burden is different in each case.

Florida imposes neither. Five states currently impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Twelve states and the District of Columbia impose a state-level estate tax. Florida is not among them. The absence of both inheritance and estate taxes, combined with the absence of a state income tax, makes Florida one of the most favorable states for wealth preservation and transfer.

Federal Estate Tax

The federal estate tax applies to the taxable estate of every U.S. citizen or resident whose estate exceeds the exemption amount. The taxable estate includes all assets the decedent owned or controlled at death, including individually held property, property in a revocable living trust, life insurance proceeds (if the decedent held incidents of ownership), retirement accounts, and the decedent’s share of jointly held property.

The $15 million exemption for 2026 means that a single individual can transfer up to $15 million in assets at death without owing any federal estate tax. Married couples can effectively shield $30 million through portability, which allows the surviving spouse to use the deceased spouse’s unused exemption by filing a portability election on IRS Form 706. The 40% tax rate applies only to the amount exceeding the exemption.

For context, fewer than 0.1% of estates nationwide owe any federal estate tax. The vast majority of Florida residents will never face a federal estate tax liability.

Stepped-Up Basis

One of the most significant tax benefits for inherited assets is the stepped-up cost basis under IRC § 1014. When a person dies, the cost basis of their assets resets to fair market value on the date of death. This eliminates capital gains tax on all appreciation that occurred during the decedent’s lifetime.

If a parent purchased a home for $200,000 and the home is worth $600,000 at death, the child who inherits the property receives a cost basis of $600,000. If the child sells the home for $600,000, no capital gains tax is owed. Without the stepped-up basis, the child would owe capital gains tax on $400,000 of appreciation.

The stepped-up basis applies to all inherited assets, including real estate, stocks, mutual funds, and business interests. The One Big Beautiful Bill Act preserved the stepped-up basis without modification. For most Florida families, the stepped-up basis provides more practical tax savings than the estate tax exemption because it applies to every estate regardless of size, while the estate tax exemption only matters for estates exceeding $15 million.

A lady bird deed preserves the stepped-up basis because the property is included in the owner’s gross estate under IRC § 2036. A lifetime gift, by contrast, carries over the donor’s original cost basis, eliminating the stepped-up basis and potentially creating a significant capital gains tax liability for the recipient.

Do Beneficiaries Pay Taxes on Inheritances

Florida beneficiaries do not owe Florida inheritance tax on any amount they receive. However, inherited assets may generate taxable income after the inheritance is received.

Inherited retirement accounts (traditional IRAs, 401(k) plans) generate taxable income when distributions are taken. Non-spouse beneficiaries must generally distribute the entire inherited retirement account within ten years of the original owner’s death under the SECURE Act. Each distribution is taxed as ordinary income in the year received. This can result in substantial income tax liability over the ten-year distribution period, particularly for beneficiaries in high income tax brackets.

Inherited real estate that is rented generates rental income subject to federal income tax. Inherited investments that pay dividends or interest generate taxable income. If a beneficiary sells inherited property for more than its stepped-up basis, the gain is subject to capital gains tax.

The key distinction is between the inheritance itself (not taxed in Florida) and the income generated by inherited assets after receipt (subject to federal income tax under normal rules).

Does a Living Trust Reduce Estate Taxes

A standard revocable living trust does not reduce federal estate taxes. Assets in a revocable trust are included in the grantor’s taxable estate because the grantor retains the power to revoke or amend the trust during their lifetime. The trust avoids probate, provides privacy, and enables incapacity planning, but it does not remove assets from the taxable estate.

For estates exceeding the $15 million exemption, irrevocable trusts can reduce estate tax liability by transferring assets out of the taxable estate during the grantor’s lifetime. Common structures include irrevocable life insurance trusts (ILITs) that remove life insurance proceeds from the estate, spousal lifetime access trusts (SLATs) that allow married couples to transfer assets while retaining indirect access, and intentionally defective grantor trusts (IDGTs) that freeze the value of transferred assets for estate tax purposes while the grantor continues to pay income tax on trust earnings.

These strategies require careful planning and are typically relevant only for individuals and couples whose combined estates exceed the $15 million per person exemption. For the vast majority of Florida residents, a revocable living trust paired with proper beneficiary designations and a lady bird deed accomplishes every practical estate planning goal without the complexity of irrevocable trust structures.

Gift Tax

Florida does not impose a state gift tax. The federal gift tax is unified with the estate tax, meaning the $15 million lifetime exemption applies to the total of all taxable gifts made during life plus the value of the estate at death. Each person can also make annual exclusion gifts of $19,000 per recipient per year (2026) without using any of their lifetime exemption.

Gifts made during life carry over the donor’s cost basis rather than receiving a stepped-up basis. For appreciated assets, this means the recipient may owe capital gains tax on the donor’s original gain when the asset is eventually sold. In most cases, holding appreciated assets until death and allowing the stepped-up basis to eliminate the embedded gain is more tax-efficient than making lifetime gifts of those assets.

States That Do Tax Inheritances or Estates

A Florida resident who dies owning property in a state that imposes an estate tax may owe tax to that state on the property located there. If a Florida resident owns real estate in New York, the New York estate tax may apply to the value of that property. Holding out-of-state property in a living trust or LLC can sometimes mitigate or eliminate this exposure depending on the state’s rules.

Beneficiaries who live in states with an inheritance tax may owe tax to their home state on assets they receive from a Florida decedent. Pennsylvania, for example, imposes inheritance tax on Pennsylvania residents who inherit from out-of-state decedents, though rates vary based on the beneficiary’s relationship to the decedent.

Florida residents who recently moved from states with estate or inheritance taxes should confirm that they have established Florida domicile and that their former state does not still claim them as a resident for tax purposes. Maintaining ties such as voter registration, a driver’s license, or a primary mailing address in the former state can create dual residency claims.

Property Inherited in Florida

When a house or other real property is inherited in Florida, the new owner assumes all legal responsibilities for the property. If the new owner plans to occupy the home as a primary residence, they may qualify for the Florida homestead exemption, which provides property tax benefits and creditor protection under Article X, Section 4 of the Florida Constitution.

The property receives a stepped-up basis to its fair market value at the date of death. If the new owner sells the property for that value or less, no capital gains tax is owed. If the new owner holds the property and it appreciates further, capital gains tax applies only to the appreciation that occurs after the date of death.

Inherited property that passes through probate may be subject to creditor claims during the probate process. Property that passes outside probate through a living trust, lady bird deed, or joint ownership with right of survivorship avoids this exposure.