# How Your Inheritance Actually Gets Taxed
Most people who inherit money or assets won't face a federal income tax bill on the inheritance itself. The federal estate tax applies only to estates exceeding $13.61 million in 2024, a threshold few families reach. But inherited assets carry hidden tax consequences that emerge later, depending on what you inherit and how you manage it.
Inherited investment accounts and real estate receive a "stepped-up basis." This means your cost basis resets to the asset's value on the date of death. If your parent bought stock for $10,000 and it appreciated to $50,000 by death, you inherit it valued at $50,000. Sell immediately and you owe nothing. This stepped-up basis shields you from paying tax on decades of gains.
This advantage faces pressure. The Biden administration proposed eliminating the stepped-up basis for estates exceeding $5 million, though Congress has not enacted this change. Monitor legislative developments if you expect a substantial inheritance.
Inherited retirement accounts work differently. The SECURE Act of 2019 eliminated the "stretch IRA" strategy for most beneficiaries. Non-spouse heirs must now empty inherited IRAs within 10 years. This compressed timeline creates a tax squeeze. Withdrawing large sums rapidly pushes you into higher tax brackets. A $500,000 IRA spread over 30 years might cost 22% in taxes. Compressed into 10 years, those withdrawals could trigger 32% or 37% rates.
Some inherited assets generate immediate taxes. Inherited rental properties produce taxable rental income. Inherited bonds and dividend-paying stocks create annual tax bills. Inherited traditional IRAs and 401(k)s contain pre-tax money that becomes taxable upon withdrawal.
Surviving spouses have special advantages. You can roll an inherited I