Texas does not have an inheritance tax, and it does not have a state estate tax either. Voters went further in November 2025, approving Proposition 8 to permanently bar the legislature from ever enacting an estate, inheritance, or death tax. The only death-related tax that can reach a Texas estate now comes from the federal government, and in 2026 that tax only touches estates worth more than $15 million per person.
That said, “no inheritance tax” is not the same as “no tax consequences.” Heirs in Texas can still face federal estate tax on very large estates, income tax on inherited retirement accounts, and a final income tax return for the person who died. And before anything reaches an heir, the estate has to settle its debts, including any Medicaid claim the state files.
Why Texas Takes Nothing
Texas repealed its inheritance tax in 2015. The state’s estate tax had already been dormant since 2005, when the federal credit that funded it was phased out. Proposition 8, approved in November 2025, closed the door for good by amending the state constitution to prohibit any estate, inheritance, or death tax, and it also blocks new state-level taxes on gifts and generation-skipping transfers.
The practical result: no matter how large the estate, Texas itself will not take a share.
Federal Estate Tax in 2026
The One, Big, Beautiful Bill Act, signed on July 4, 2025, set the federal estate tax exemption at $15 million per person beginning in 2026. A married couple that makes a portability election can shelter up to $30 million combined.1Internal Revenue Service. What’s New – Estate and Gift Tax The exemption will start adjusting for inflation in 2027.2Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax
For estates that exceed the exemption, the federal rate runs from 18% on the first $10,000 over the threshold up to 40% on amounts more than $1 million past it.3Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Any estate large enough to owe tax at all will pay mostly at the 40% rate.
If tax is owed, the executor files Form 706 within nine months of the date of death.4Office of the Law Revision Counsel. 26 USC 6075 – Time for Filing Estate and Gift Tax Returns Filing Form 4768 before that deadline gets an automatic six-month extension to file.5eCFR. 26 CFR 20.6081-1 – Extension of Time for Filing the Return The extension covers the return, not the payment. Tax owed is still due at nine months, and late payments trigger a 0.5% monthly penalty on the unpaid balance up to 25%, plus interest that compounds daily at the federal short-term rate plus three points.6Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
Deductions That Shrink a Taxable Estate
The unlimited marital deduction lets any amount pass to a surviving spouse free of federal estate tax.7eCFR. 26 CFR 20.2056(a)-1 – Marital Deduction, In General Charitable bequests, funeral costs, and administrative expenses like attorney and executor fees also come off the taxable amount.
Lifetime gifting is the other lever. The annual gift tax exclusion is $19,000 per recipient in 2026, and gifts under that amount do not eat into the lifetime exemption.8Internal Revenue Service. Frequently Asked Questions on Gift Taxes Consistent gifting over years can move meaningful wealth out of a taxable estate. Irrevocable trusts and family limited partnerships are more aggressive tools used by high-net-worth families, though they require giving up control of the assets.
Step-Up in Basis for Inherited Property
Most Texas heirs will never see a federal estate tax bill. What they will see is a tax break: the cost basis of inherited property resets to fair market value on the date of death.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This is the “step-up in basis,” and it can wipe out decades of capital gains.
An example: your parent buys a house in 1990 for $80,000, and it is worth $400,000 on the day they die. Your basis is $400,000. Sell it shortly after for $400,000 and you owe no capital gains tax. Without the step-up, you would owe tax on $320,000 of gain. The same rule reaches stocks, land, and other appreciated assets.10Internal Revenue Service. Gifts and Inheritances
Texas’s community property status adds a layer here. In community property states, both halves of a jointly owned marital asset step up when one spouse dies. In a common-law state, only the deceased spouse’s half would step up. For couples who bought property together decades ago, the difference can save the surviving spouse tens of thousands of dollars in capital gains tax on a later sale.
Inherited Retirement Accounts
Retirement accounts are where heirs most often get an unpleasant tax surprise, because they do not follow normal inheritance rules. A surviving spouse can roll an inherited IRA or 401(k) into their own IRA and keep deferring tax. Everyone else runs into the 10-year rule: non-spouse beneficiaries who inherited an account after 2019 must empty it by the end of the tenth year after the original owner’s death.11Internal Revenue Service. Retirement Topics – Beneficiary
Withdrawals from an inherited traditional IRA count as taxable income to the beneficiary. If the original account holder was already taking required minimum distributions, the beneficiary must also take annual distributions during the 10-year window. Inherited Roth IRAs use the same 10-year deadline, but withdrawals are generally tax-free because the original owner already paid tax on the contributions.
A narrow group of “eligible designated beneficiaries” can still stretch distributions over their own life expectancy: minor children of the account holder (until they reach the age of majority), disabled or chronically ill individuals, and people no more than 10 years younger than the deceased.11Internal Revenue Service. Retirement Topics – Beneficiary
The Deceased’s Final Income Tax Return
Someone still has to file a final Form 1040 for the person who died, covering income from January 1 through the date of death. The return is due by the normal April 15 deadline for that tax year. A surviving spouse can file a joint return for the final year.12Internal Revenue Service. File the Final Income Tax Returns of a Deceased Person
If the deceased missed returns in prior years, the personal representative has to catch those up too. When a refund is due, the person claiming it may need to file Form 1310 with the return. Any balance owed comes out of estate funds.
Who Inherits When There Is No Will
Because Texas has no inheritance tax, the more consequential question for most families is who actually gets the property. That depends on whether the asset is community or separate property, and whether the deceased left a will.
Community property covers most assets acquired during marriage, regardless of whose name is on the account or title: wages, investment gains, real estate bought with marital funds. Gifts and inheritances received during marriage stay separate, as long as they were not mixed with community funds.
When one spouse dies, the surviving spouse already owns their own half of the community property. Only the deceased spouse’s half moves through the estate. If all the deceased’s children are also children of the surviving spouse, that half goes to the surviving spouse.13State of Texas. Texas Estates Code 201.003 – Community Estate of an Intestate
Blended families land in a different spot. If the deceased had children from a prior relationship, those children take the deceased’s half of the community property. The surviving spouse keeps their own half but gets nothing more from the deceased’s share.13State of Texas. Texas Estates Code 201.003 – Community Estate of an Intestate That regularly leaves a surviving spouse and stepchildren co-owning the family home.
Separate property follows a different formula. When the deceased had children, the surviving spouse inherits one-third of separate personal property outright and a life estate in one-third of separate real property. The children take the rest. With no children, the surviving spouse takes all separate personal property and half of separate real property; the other half of the real property goes to the deceased’s parents or siblings. The spouse only inherits everything if no parents, siblings, or their descendants survive.14State of Texas. Texas Estates Code 201.002 – Separate Estate of an Intestate
Texas intestacy only recognizes blood relatives and legally adopted children. Unmarried partners, stepchildren, and close friends inherit nothing unless a will names them.
Debts and Medicaid Recovery Come First
Heirs do not inherit the deceased’s debts, but the estate must pay what it owes before anyone receives a distribution. Texas law sets a priority order: funeral expenses and final medical costs rank first, each capped at $15,000 for priority treatment; secured debts like mortgages and tax liens are paid from the property securing them; unsecured creditors fall to the bottom.15State of Texas. Texas Estates Code 355.102 – Claims Classification, Priority of Payment If the estate cannot cover everything, lower-priority creditors take a partial payment or nothing, and beneficiaries take whatever remains. Unpaid property taxes or a mortgage attach to the real estate itself and must be resolved before clean title can pass to an heir.
One creditor deserves separate attention because heirs often do not see it coming. Texas participates in the federal Medicaid Estate Recovery Program, which lets the state seek reimbursement from the estates of deceased Medicaid recipients who were 55 or older when they received covered long-term care services and who first applied for those services on or after March 1, 2005.16Texas Health and Human Services. Medicaid for the Elderly and People with Disabilities Handbook – D-7800, Medicaid Estate Recovery Program Covered services include nursing facility care, intermediate care for individuals with intellectual disabilities, and several Medicaid waiver programs.
The state files its claim within 70 days of learning about the recipient’s death.17Legal Information Institute. 1 Texas Administrative Code 373.205 – Medicaid Estate Recovery Program (MERP) Claim Heirs can request a hardship waiver to protect the family home. Homesteads appraised below $100,000 may be fully exempt if the inheriting heirs have gross family income below 300% of the federal poverty level. Other hardship grounds include recovery that would force heirs onto public assistance, or a working family farm that produces the majority of the heirs’ income.18Legal Information Institute. 1 Texas Administrative Code 373.209 – Undue Hardship Waivers Ignoring a MERP notice can lead to a state lien on estate property, so heirs who receive one should treat the deadline seriously.