If you inherit money or property in Massachusetts, you do not owe any state tax just for receiving it. There are no taxes on inheritance in Massachusetts paid by beneficiaries. The Commonwealth repealed its inheritance tax decades ago.1Massachusetts Department of Revenue. AP 500: Estate and Inheritance Tax What Massachusetts does have is an estate tax, which the estate itself pays out of its assets before anything reaches you. And once inherited assets are in your hands, certain ones can produce income tax bills later. Knowing which is which keeps you from being blindsided.
No Inheritance Tax, But There’s an Estate Tax
The two sound similar and get mixed up constantly. An inheritance tax would land on you, the person receiving the assets. Massachusetts abolished that tax for deaths after December 31, 1975.1Massachusetts Department of Revenue. AP 500: Estate and Inheritance Tax The estate tax, by contrast, applies to the total value of what the deceased owned, and the estate pays it before distributing anything to heirs. As a beneficiary, your share arrives after that tax has been settled.
So the practical answer for most heirs: no tax bill arrives in your name because you inherited. The money that passes to you has already cleared whatever estate tax was owed.
When the Estate Owes Tax
The Massachusetts estate tax applies when the gross estate exceeds $2 million. Estates at or below that figure owe nothing, thanks to a credit of up to $99,600 introduced by a 2023 law for deaths on or after January 1, 2023.2Massachusetts Department of Revenue. FAQs: New Estate Tax Changes
Here’s the part that catches families off guard. Massachusetts calculates the tax on the entire estate once it crosses $2 million, not just the amount above it. The $99,600 credit then offsets the result. An estate at exactly $2 million owes zero. An estate at $2.5 million can owe roughly $30,800. That jump is the “cliff,” and it’s why an estate just over the threshold can still produce a meaningful bill.3Massachusetts Department of Revenue. Massachusetts Estate Tax Guide
The gross estate includes nearly everything the deceased owned: real estate, bank accounts, investments, vehicles, personal property, retirement accounts, jointly held property, and life insurance proceeds even when they go directly to a named beneficiary.3Massachusetts Department of Revenue. Massachusetts Estate Tax Guide Deductible items like debts, funeral costs, administrative expenses, property passing to a surviving spouse, and charitable gifts can bring the taxable estate down, sometimes below the $2 million line.
The executor or personal representative files Form M-706 and pays the tax from estate assets.4Massachusetts Department of Revenue. Who Must File Estate Tax Returns The return and payment are due nine months after the date of death. An automatic six-month filing extension is available if the estate pays at least 80% of the tax owed by the original due date; falling short triggers penalties and interest.5Massachusetts Department of Revenue. Massachusetts DOR Tax Due Dates and Extensions
You don’t personally owe this tax as a beneficiary. But if the estate is short on cash, property sometimes has to be sold to pay the bill, which can shape what actually reaches you.
Income Tax on What You Inherit
The inheritance itself isn’t taxable income. Receiving cash, a house, or shares of stock from an estate does not go on your Massachusetts or federal income tax return. Once you own those assets, though, any income they produce is yours to report. Rent from an inherited rental property, dividends from inherited stocks, interest from an inherited bank account — all taxable in the year you receive it, like any other income.
Stepped-Up Basis When You Sell
One of the most valuable rules for heirs is the stepped-up basis. When you inherit property, its cost basis resets to the fair market value on the date the original owner died.6Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Say your parent bought a house for $150,000 and it was worth $500,000 on the day they died. Your basis is $500,000. If you sell for $510,000, you owe capital gains tax on $10,000, not on the $360,000 of appreciation that happened during your parent’s lifetime. Sell at or below $500,000 and you owe no capital gains tax at all.
This step-up covers most inherited property, including real estate and investment accounts held in taxable (non-retirement) form. One major category is excluded.
Income in Respect of a Decedent
Certain income the deceased earned but hadn’t received at death is called “income in respect of a decedent.” It does not get a stepped-up basis.6Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Common examples are traditional retirement accounts, unpaid wages or bonuses, and accrued but unpaid interest. When you receive these items, you owe ordinary income tax on them, the same tax the deceased would have owed.7eCFR. 26 CFR 1.691(a)-1 – Income in Respect of a Decedent
Inherited Retirement Accounts
Inherited retirement accounts are the single biggest source of surprise tax bills for beneficiaries. Every dollar you withdraw from an inherited traditional IRA or 401(k) is taxed as ordinary income.8Internal Revenue Service. Retirement Topics – Beneficiary There is no step-up. The account was funded with pre-tax dollars, and the IRS collects when the money comes out, no matter who’s taking it.
How quickly you have to withdraw depends on who you are to the deceased:
- If you’re the surviving spouse, you can roll the account into your own IRA and take distributions on your own schedule, or treat it as an inherited IRA and spread withdrawals over your life expectancy.
- If you’re a minor child of the deceased, disabled or chronically ill, or less than 10 years younger than the deceased, you can take distributions over your own life expectancy.
- Everyone else — most adult children and other heirs — has to empty the account by the end of the tenth year after the year of death. If the original owner had already started required minimum distributions, you may need to take annual distributions during that 10-year window too.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
The 10-year rule is where tax planning actually matters. Pulling the whole account in one year can push you into a much higher bracket. Spreading withdrawals across the full 10 years often keeps you in a lower one. Inherited Roth IRAs follow the same 10-year timeline, but because Roth distributions are generally tax-free, the stakes are much lower.
Federal Estate Tax
A federal estate tax exists on top of the Massachusetts one, but the threshold is far higher. For 2026, the federal exemption is $15 million per individual, set permanently (with inflation adjustments starting in 2027) by the One Big Beautiful Bill signed on July 4, 2025.10Internal Revenue Service. What’s New — Estate and Gift Tax Because of that number, very few estates owe any federal estate tax at all.
The two taxes are independent. A $3 million estate owes Massachusetts estate tax but nothing federally. Paying one doesn’t eliminate the other, though a federal deduction for state estate taxes paid may apply. And again, neither tax is yours as a beneficiary. The estate pays, and you receive what’s left.