Do you need to worry about paying taxes on your inheritance in Idaho?

One of the most common questions I hear from clients in my estate planning practice is: "Will my heirs have to pay taxes on their inheritance?" It's a valid concern, as nobody wants their loved ones burdened with unexpected tax bills during an already difficult time. The good news for Idaho residents is that in most cases, inheritance taxes are much less of a concern than many people fear.

Idaho Has No Inheritance or Estate Tax 

First and foremost, Idaho does not impose an inheritance tax or an estate tax at the state level. This means that if you're inheriting assets from someone who lived in Idaho, you won't owe any state-level inheritance taxes on those assets. 

This puts Idaho residents in a favorable position compared to those in states like Maryland, Nebraska, New Jersey or Pennsylvania, which do collect inheritance taxes from beneficiaries. 

Federal Estate Tax Only Affects Very Large Estates 

At the federal level, there is an estate tax, but it only affects a small percentage of estates due to the high exemption amount. For 2025, the federal estate tax exemption is $13.99 million per individual. This means that an estate must exceed this value before any federal estate tax would be due. 

To be clear: this is not a tax on you as the inheritor; it's a tax on the estate before assets are distributed. The estate itself would pay any federal estate tax owed, not the beneficiaries receiving inheritances. 

For married couples who plan properly, the exemption can effectively be doubled to $27.98 million with portability elections. This puts federal estate taxes well out of concern for the vast majority of Idaho families.  

However, without Congressional action, the $13.99 million exemption amount will change to $7 million as of January 1, 2026 – still a large exemption, but not nearly as much.  

Income Taxes and Specific Assets 

While there typically isn't an "inheritance tax" per se for most Idahoans, certain inherited assets may have income tax implications: 

Inherited Retirement Accounts (IRAs, 401(k)s) 

If you inherit a traditional IRA or 401(k), distributions you take will generally be subject to income tax, just as they would have been for the original owner. The SECURE Act of 2019 changed the rules for non-spouse beneficiaries, requiring most to empty inherited retirement accounts within 10 years, which could potentially push beneficiaries into higher tax brackets. 

Appreciated Assets and Stepped-Up Basis 

Here's some great news: most inherited assets (like stocks, real estate, or collectibles) receive what's called a "stepped-up basis." This means the asset's tax basis becomes its fair market value at the owner's date of death, essentially wiping out any capital gains that occurred during the original owner's lifetime. 

For example, if your parent purchased stock for $10,000 that was worth $100,000 when they passed away, your basis would be $100,000. If you later sell it for $110,000, you would only pay capital gains tax on the $10,000 increase that occurred after you inherited it. 

Life Insurance 

Life insurance death benefits are generally income tax-free to beneficiaries, making them an excellent estate planning tool. 

Planning Ahead Makes All the Difference 

While Idaho residents are fortunate to avoid state inheritance and estate taxes, thoughtful planning remains important to minimize potential federal estate taxes for larger estates and to manage income tax implications for specific assets. 

Consider these strategies: 

• Lifetime gifting to reduce estate size 

• Proper beneficiary designations 

• Trust planning for specific situations 

• Charitable giving strategies 

• Life insurance to provide liquidity 

The Bottom Line 

For most Idaho residents, inheritance taxes aren't a significant concern. However, understanding how different assets are treated for income tax purposes can help you and your heirs make wise decisions. Every family situation is unique, which is why personalized estate planning advice is invaluable. 

Remember that tax laws change frequently, so it's always wise to consult with both an estate planning attorney and a tax professional about your specific situation. With proper planning, you can ensure your legacy passes to your loved ones as efficiently as possible. 

My law firm is currently offering free telephonic, electronic, or in-person consultations concerning creating or reviewing estate planning documents.   

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Robert J. Green is an Elder Law, Trust, Estate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Kootenai Law at 208-765-6555, Info@KootenaiLaw.com, or visit www.KootenaiLaw.com.

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.