Does Illinois Have an Inheritance or Estate Tax?

Illinois does not have an inheritance tax. It does have a state estate tax, which applies to estates worth more than $4 million and is paid by the estate itself before anything reaches the heirs. So if you’re inheriting from someone who died an Illinois resident, you won’t get a tax bill from the state based on your share. The estate’s executor handles any Illinois estate tax owed, and whatever reaches you is already net of it.

The distinction matters because the two taxes work very differently. An inheritance tax would charge each beneficiary based on what they personally receive, sometimes at rates tied to how closely they were related to the deceased. Illinois doesn’t impose that kind of tax at all. Its estate tax looks only at the total value of what the deceased left behind, ignores who inherits it, and is settled by the executor out of estate funds. The Illinois Attorney General’s office administers it, not the Department of Revenue.

When the Estate Owes Illinois Tax

The threshold is $4 million in total estate value. Below that, the estate owes no Illinois estate tax and no return is required. Above it, the executor has to file and pay.

The threshold has been frozen at $4 million since 2013 and is not adjusted for inflation.¹ That matters more each year, because home values and retirement balances have climbed while the line has stayed put.

There’s also a trap built into how the $4 million works. It isn’t a credit that shelters the first $4 million. It’s a cliff. An estate worth $3.99 million owes nothing. An estate worth $4.01 million is taxed on the entire taxable estate, not on the $10,000 above the line.² Crossing the line by any amount produces a sudden tax bill that can run into six figures.

Rates are graduated, running from 0.8% at the low end up to 16% on adjusted taxable estates above roughly $10 million.³ The math is complicated enough that the Attorney General’s office publishes an online calculator, which most attorneys and CPAs use rather than computing the tax by hand.

What Counts Toward the $4 Million

Everything the deceased owned or controlled at death goes into the gross estate at fair market value on the date of death. That includes real estate, bank and brokerage accounts, stocks and bonds, business interests, vehicles, jewelry, art, and other personal property. It also includes some things people don’t expect.

Life insurance is the big one. If the deceased owned the policy, the full death benefit is included in the gross estate even though it passes directly to the named beneficiary and never goes through probate. A $1 million policy can be the thing that pushes a seemingly modest estate over $4 million. An irrevocable life insurance trust can keep the policy out of the estate, but the transfer has to happen more than three years before death, or the trust has to buy the policy itself.

Retirement accounts count too. IRAs, 401(k)s, and other tax-deferred accounts are part of the gross estate at their full balance, even though they pass by beneficiary designation. Real estate and closely held business interests generally require a formal appraisal to establish fair market value.

Deductions That Can Get an Estate Under the Line

Two deductions do most of the work in reducing a taxable estate.

The marital deduction allows an unlimited amount of assets to pass to a surviving spouse who is a U.S. citizen with no Illinois estate tax owed, including through qualified terminable interest property (QTIP) elections.² The tax is deferred, not erased. When the surviving spouse later dies, whatever remains is part of their estate.

The charitable deduction covers assets left to qualifying nonprofits. The estate can also deduct the deceased’s debts, funeral expenses, and administrative costs of settling the estate.

No Portability Between Spouses

Federal law lets a surviving spouse inherit any unused portion of the deceased spouse’s federal exemption. Illinois does not. Each spouse gets one $4 million exclusion, and if the first spouse leaves everything to the survivor using the marital deduction, that first exclusion is effectively wasted.²

This is why Illinois estate planners often recommend a credit shelter trust (also called a bypass trust) for married couples whose combined assets are above $4 million. The trust uses the first spouse’s $4 million exclusion at the first death, keeping those assets out of the survivor’s estate when they later die.

Filing and Paying When the Estate Owes

If the estate exceeds $4 million, the executor files Illinois Form 700 with the Attorney General’s office.⁴ The return is due nine months after the date of death, the same deadline as the federal estate tax return.⁵ An extension of time to file is possible, but it does not extend the time to pay.

The filing and the payment go to two different places. Form 700 is filed with the Attorney General. The payment itself goes to the Office of the Illinois State Treasurer, with notarized, signed payment forms.⁶ This split catches first-time executors off guard.

Late payment accrues interest at 10% per year from the nine-month deadline until paid.⁴ If liquidating assets to raise the cash will take time, paying as much as possible at the deadline keeps the interest down.

If You Don’t Live in Illinois but Own Property Here

Residency isn’t the only trigger. A nonresident who dies owning property located in Illinois can still generate an Illinois estate tax bill if the total estate exceeds $4 million. The tax is computed as if everything were in Illinois, then apportioned by the ratio of Illinois assets to total assets.² Nonresident estates file the same Form 700 with an additional addendum.

The Federal Estate Tax Is a Separate Question

Illinois estate tax and federal estate tax are two different bills, and most Illinois estates that owe the state nothing also owe the federal government nothing. After the One, Big, Beautiful Bill signed into law in July 2025, the federal exclusion is permanently set at $15 million per individual, with inflation adjustments starting in 2027.⁷ Married couples can shield up to $30 million through federal portability.

So an estate worth $6 million owes no federal estate tax but faces a real Illinois estate tax bill. The two returns share underlying asset valuations and share the nine-month deadline, so they’re typically prepared together.

What Heirs Actually Pay: The Stepped-Up Basis

Because Illinois has no inheritance tax, the main tax question for an heir is what happens when they later sell what they inherited. The answer is usually good news: inherited assets get a stepped-up basis.

When you inherit property, its cost basis for capital gains purposes resets to the fair market value on the date the previous owner died. If a parent bought a house for $150,000 and it was worth $500,000 at their death, your basis is $500,000. Sell it a year later for $510,000, and you owe capital gains tax on $10,000, not $360,000. Inherited assets are automatically treated as long-term holdings, so they qualify for the lower long-term capital gains rates regardless of how long the deceased actually owned them.

The step-up doesn’t apply to inherited retirement accounts like traditional IRAs and 401(k)s. Distributions from those accounts remain subject to income tax when you take them. And for jointly owned property, only the deceased’s share gets the step-up. If spouses owned a home as joint tenants, half the home gets the new basis and the surviving spouse’s half keeps its original basis.

1
Illinois General Assembly. Illinois Compiled Statutes 35 ILCS 405/2
2
Illinois Attorney General. Important Notice Regarding Illinois Estate Tax and Fact Sheet
3
Illinois Attorney General. State Death Tax Credit Table
4
Illinois Attorney General. Illinois Estate and Generation-Skipping Transfer Tax Return Form 700
5
Internal Revenue Service. Filing Estate and Gift Tax Returns
6
Illinois State Treasurer. Estate Taxes Paid to Illinois Treasurer’s Office
7
Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax