Illinois does not have an inheritance tax. If you inherit money or property from someone who lived in Illinois, the state does not send you a bill for receiving it. Illinois does have an estate tax. It applies only when the estate of the person who died is over $4,000,000, and the estate pays it before anything is divided.1 If your parents' house, savings and retirement accounts add up to less than that, Illinois generally takes nothing from what they leave you.
That answers the question most people are asking. A few other rules decide whether what you receive is ever taxed as income, what happens when you sell it, and whether another state can tax it. This page goes through each one. The statutes are in the detailed version below.
What is the difference between an inheritance tax and an estate tax?
The difference is who gets the bill. An inheritance tax is charged to each person who inherits, on that person's share. An estate tax is charged once, to the estate as a whole, before the shares are paid out.
Illinois has the second kind and not the first. If you are one of three children, the three of you do not each file something with Illinois or pay on what you receive. The person settling the estate files one return with the Illinois Attorney General and pays one amount from the estate.2
Who pays the Illinois estate tax?
The estate pays it, and only when the estate is large enough. Illinois requires a return when everything the person owned at death, plus the large taxable gifts they made while alive, comes to more than $4,000,000.1
Here is a hypothetical example. Your mother dies in 2026 as an Illinois resident. Her taxable estate is $5,000,000, all of it Illinois property, and her will leaves it to you and your brother in equal shares. The estate owes Illinois $285,714.3 That comes out before the estate is divided, so each of you receives about $2,357,000 and not $2,500,000. Neither of you owes Illinois anything more for having inherited.
If her taxable estate had been $4,000,000 or less, the estate would have owed Illinois nothing.3
Our Illinois estate tax calculator shows the tax on an estate of any size. Our Illinois estate tax guide explains who owes the tax and how married couples are treated, and how the Illinois estate tax is calculated shows the state's steps.
What is the inheritance tax rate in Illinois?
There is no Illinois inheritance tax rate, because there is no Illinois inheritance tax. The number you may have seen quoted is for the estate tax, and it is not a single rate. Illinois estate tax rates shows what estates of different sizes pay.
Is an inheritance taxable income?
Generally not. Under federal law, property you inherit is not part of your income. You do not report the house, the savings account or the brokerage account on your tax return for the year you receive it.4 Life insurance paid to you because of the death is generally not income to you either.4
Two things are commonly taxed as income.
The first is a withdrawal from an inherited traditional IRA. Most of the money in that account was never taxed while its owner was alive. When you take it out, the taxable part of the withdrawal is added to your income for that year.5 If you inherit a $400,000 traditional IRA and withdraw $50,000 this year, the $50,000 is on your federal return this year. Other accounts that were never taxed, such as a 401(k), are generally treated in a similar way.
The second is what the inheritance earns after it is yours. Interest, dividends and rent are your income from the day the property is yours. If the inheritance is held in a trust for you, the income it pays you is taxed to you as well.4 Our calculator on an inheritance in trust or outright compares the tax each way.
Do you pay taxes on an inheritance in Illinois?
You do not pay Illinois tax for receiving it. Illinois figures its income tax starting from the income on your federal return, and an inheritance is not on your federal return.6
Illinois also taxes inherited retirement money less than the federal government does. A withdrawal from an inherited traditional IRA is on your federal return, but Illinois subtracts IRA distributions when it figures your state tax.6
The income your inheritance earns afterward is different. Interest, dividends and rent are taxed by Illinois the same way as your other income.
What happens when you sell something you inherited?
You are generally taxed only on the gain since the death, not on the gain during the owner's life. For tax purposes, your cost for inherited property is generally its value on the date of death. The earlier gain is not taxed.7
Suppose your father bought shares for $50,000 many years ago, and they are worth $400,000 on the day he dies. If you inherit them and later sell them for $410,000, your taxable gain is $10,000, not $360,000. Step-up in basis when your spouse dies explains this rule in more detail.
This rule does not apply to an inherited traditional IRA. Withdrawals from it are taxed as income, as described above.5
What if the person who died lived in another state?
Then that state's rules can matter to you. A few states have an inheritance tax. Pennsylvania, New Jersey and Kentucky are three of them.8
A state's inheritance tax generally depends on where the person who died lived and what they owned there, not on where you live.8
A state's inheritance tax generally depends on where the person who died lived and what they owned there, not on where you live.
If your aunt lived in Pennsylvania and left you part of her estate, Pennsylvania's inheritance tax can apply to your share, though you live in Illinois. The rate in those states depends on how you were related to the person who died. In Pennsylvania it is 4.5% for children and grandchildren and 12% for brothers and sisters.8 The executor of the estate usually handles the return, and can tell you whether a tax applies to what you receive.
Is there a federal inheritance tax?
No. The federal government has an estate tax, and it is paid by the estate. In 2026 it applies only to estates over $15,000,000 for one person, so very few estates owe it.9
What goes wrong with an inheritance in Illinois?
These are the mistakes we see most often.
People assume nothing they inherit is taxed, then are surprised that withdrawals from an inherited traditional IRA are taxed as income.
People sell inherited property and report the original purchase price as their cost, so they pay tax on gain the law does not tax.
People do not get the date-of-death value in writing while the estate is being settled, and cannot prove their cost when they sell years later.
People think the estate tax is their parents' problem, and learn after the death that the house, the retirement accounts and the life insurance together were over $4,000,000.
People who inherit from a relative in another state do not ask whether that state has an inheritance tax.
People cash out an inherited traditional IRA in one year. The whole amount is added to that year's income, and much of it is taxed at higher rates than usual.
Where we fit in. We integrate tax considerations into your investment strategy and collaborate with estate attorneys and CPAs to ensure your plan is coordinated. We are not a law firm or accounting firm, so we do not provide legal or tax advice. Everything in this material is for educational purposes, based on primary sources. Before taking any action, please consult the appropriate professionals to apply these ideas to your situation.
If you have inherited something, or expect to, the questions after this one are usually what to do with an inherited IRA and what to keep or sell. If you would like to go through those with someone, we are glad to have that conversation.
The detailed versionThe statutes and the citationsFor CPAs, estate attorneys, and anyone who wants the sources: the Illinois and federal provisions behind each statement on this page, and the arithmetic of the example.Show
Illinois has an estate tax and no inheritance tax
- The Illinois Estate and Generation-Skipping Transfer Tax Act imposes "an Illinois estate tax" on every taxable transfer of property with a tax situs in Illinois: 35 ILCS 405/3(a).1 The Act contains no tax measured by what a beneficiary receives.
- A Form 700 is required when the gross estate, after inclusion of adjusted taxable gifts, exceeds $4,000,000, whether or not a federal return is required: the Attorney General's fact sheet.1
- The return is filed and the tax is paid by the persons who are, or would be, required to file the federal return and pay the federal tax, and the return is filed with the Attorney General: 35 ILCS 405/6(c) and (d).2
The example
A taxable estate of $5,000,000, all Illinois property, with no adjusted taxable gifts and nothing passing to a spouse or charity, owes $285,714 of Illinois estate tax. This is one of the Attorney General's published examples. $5,000,000 less $285,714 is $4,714,286, and half of that is $2,357,143. The federal estate tax on this estate is $0. The example leaves out the costs of settling the estate. A taxable estate of $4,000,000 owes $0, which is also a published example.3
Income tax on what you inherit
- Gross income does not include the value of property acquired by gift, bequest, devise or inheritance. The income from that property is not excluded: 26 U.S.C. § 102(a) and (b).4
- A beneficiary of a traditional IRA includes taxable distributions in gross income: IRS Publication 590-B. A distribution from an inherited traditional IRA is income in respect of a decedent: IRS Publication 559.5
- Illinois base income for an individual is federal adjusted gross income as modified. One modification subtracts amounts included under Internal Revenue Code sections 402(a), 402(c), 403(a), 403(b), 406(a), 407(a) and 408: 35 ILCS 5/203(a)(1) and (a)(2)(F).6
- The basis of property acquired from a decedent is generally its fair market value at the date of death: 26 U.S.C. § 1014(a)(1).7
