Virginia does not have an inheritance tax, and its estate tax has generated a $0 liability since 2005. Receiving money, property, or other assets from someone’s estate won’t produce a Virginia tax bill just for the act of inheriting. That said, an inheritance can still trigger federal estate tax on very large estates, income tax on retirement account withdrawals, capital gains tax when you sell inherited property, and in some situations another state’s inheritance tax.
Why Virginia Charges No Inheritance Tax
The General Assembly replaced Virginia’s Inheritance and Gift Tax with an estate tax for transfers on or after January 1, 1980.1Virginia Tax. Ruling 82-148 That estate tax was a “pick-up” tax, set equal to whatever credit the federal government allowed for state death taxes under Internal Revenue Code Section 2011.2Virginia Code Commission. Virginia Code 58.1-901 – Definitions
The federal credit was phased out between 2002 and 2005 and replaced with a deduction. Because Virginia never decoupled from the credit, the state’s estate tax dropped to zero when the credit disappeared. The statute is still on the books, but it collects nothing, and the tax effectively expired in July 2007.3Virginia Code Commission. Virginia Code Title 58.1 – Chapter 9 Virginia Estate Tax No inheritance tax has replaced it.
When Another State’s Inheritance Tax Can Reach You
This is the trap that catches Virginia residents. Inheritance tax is owed to the state where the deceased person lived or owned property, not where you live. Five states currently impose one: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If a relative in any of those states leaves you an inheritance, that state’s rules apply to you.
Maryland matters most for Virginia residents because so many families cross the border. Maryland imposes a 10% inheritance tax on collateral heirs, meaning nieces, nephews, and unrelated beneficiaries. Spouses, children, grandchildren, parents, grandparents, and siblings are exempt.4Maryland Register of Wills. Inheritance Tax So inheriting from a Maryland sibling costs you nothing, but inheriting from a Maryland aunt or a close friend can trigger a 10% bill payable to Maryland.
The other four states use their own rate schedules keyed to your relationship with the deceased. Rates run from 0% for close relatives up to 16% for distant or unrelated beneficiaries. If the person you’re inheriting from lived in any of these states, check that state’s rules before assuming Virginia’s silence protects you.
Federal Estate Tax on Large Estates
The federal estate tax still exists, and it applies regardless of where the deceased lived. The One, Big, Beautiful Bill Act, signed July 4, 2025, set the basic exclusion amount at $15 million per individual for 2026, with inflation adjustments starting in 2027.5Internal Revenue Service. What’s New – Estate and Gift Tax Married couples can shield up to $30 million through portability, which lets a surviving spouse claim the deceased spouse’s unused exemption.
Only the value above the exemption is taxed, and the top rate is 40%.6Office of the Law Revision Counsel. 26 U.S. Code 2001 – Imposition and Rate of Tax The estate itself pays the tax before distributing assets, so if you’re a beneficiary, the executor handles the filing and payment, not you.7Internal Revenue Service. Responsibilities of an Estate Administrator The filing threshold was $13.61 million for 2024 and $13.99 million for 2025 before the 2026 jump.8Internal Revenue Service. Estate Tax
Income Tax on Inherited Retirement Accounts
This is the most common way an inheritance produces an actual tax bill for a Virginia resident. When you inherit a traditional IRA or 401(k), every dollar you withdraw is taxed as ordinary income at both the federal and Virginia level. The original owner deferred the tax by taking a deduction on contributions; that deferred bill now transfers to you.9Internal Revenue Service. Retirement Topics – Beneficiary
For most non-spouse beneficiaries who inherited after 2019, the entire account must be emptied by the end of the tenth year after the original owner’s death. If the owner died before required minimum distributions started, you can spread withdrawals across those ten years however you choose, though piling everything into a single year can push you into higher brackets.10Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements Spouse beneficiaries have more options, including rolling the account into their own IRA.
Inherited Roth IRAs work differently. Withdrawals of contributions are always tax-free, and withdrawals of earnings are also tax-free as long as the Roth has been open at least five years. The 10-year deadline still applies, but the distributions generally won’t add to your taxable income.9Internal Revenue Service. Retirement Topics – Beneficiary
Virginia taxes retirement withdrawals as ordinary income. The top state rate of 5.75% kicks in at just $17,000 of Virginia taxable income, so any meaningful distribution will land in the top bracket.11Virginia Code Commission. Virginia Code 58.1-320 – Imposition of Tax
Capital Gains Tax When You Sell Inherited Property
Inherited real estate, stocks, and other appreciated assets receive a stepped-up basis under federal law. The tax basis resets to the fair market value on the date the owner died, wiping out all the appreciation that built up during their lifetime.12Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
Suppose your mother bought a house for $120,000 in 1990 and it was worth $450,000 the day she died. Your basis is $450,000. If you sell six months later for $460,000, you owe capital gains tax on $10,000, not on the $340,000 of appreciation that accumulated before her death. The step-up applies automatically.13Internal Revenue Service. Gifts and Inheritances
Virginia taxes capital gains as ordinary income, adding the state’s top 5.75% rate to whatever federal rate applies.11Virginia Code Commission. Virginia Code 58.1-320 – Imposition of Tax If you hold the property more than a year after inheriting it, the federal rate is typically 0%, 15%, or 20% depending on your income. Sell within a year and the federal side is taxed at ordinary income rates.
Property Tax on Inherited Real Estate
Inheriting a house or land in Virginia does not exempt it from local property tax. Virginia localities assess real estate annually, and the tax obligation follows the property to you. The assessed value may change after the transfer, especially if the locality is due for a scheduled reassessment. Contact the local Commissioner of the Revenue or assessor’s office once the property is in your name to confirm the assessment and the payment schedule.
Reporting a Foreign Inheritance
If you receive more than $100,000 in a single tax year from a foreign estate, you must report it to the IRS on Form 3520. The inheritance itself isn’t taxable income, but Form 3520 is an information return, and skipping it can produce steep penalties. The form is due April 15 for calendar-year taxpayers. A filing extension on your income tax return extends the Form 3520 deadline as well, but no later than October 15. Once you cross the $100,000 threshold, you must separately identify each gift or bequest above $5,000.14Internal Revenue Service. Gifts From Foreign Person