Estate and Inheritance Tax in Texas 2026
Estate and Inheritance Tax in Texas 2026
Texas does not impose a state estate tax, a state inheritance tax, or a state income tax. The only estate tax that applies to Texas residents is the federal estate tax, which has a $15,000,000 exemption in 2026. For most Texas families, no estate tax of any kind is owed at death. This guide explains what was repealed, what still applies at the federal level, how community property creates a unique tax advantage, and what Medicaid estate recovery means for Texas estates.
Texas Has No State Estate Tax
Texas formerly had a state estate tax under Tax Code Ch. 211. That tax was a "pick-up" or "sponge" tax: it equaled the federal credit for state death taxes, so paying it did not increase the total tax bill. The state simply received a portion of what would otherwise go to the federal government.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) phased out the federal credit for state death taxes, reducing it to zero by 2005. When the federal credit disappeared, the Texas pick-up tax automatically dropped to zero because it was calculated as a percentage of a credit that no longer existed.
Unlike states such as Massachusetts and Oregon, Texas did not "decouple" from the federal system by creating a standalone state estate tax. The result: Texas has had no state estate tax since 2005, and no legislation has been introduced to create one.
Texas Has No Inheritance Tax
An inheritance tax is different from an estate tax. An estate tax is paid by the estate before assets are distributed. An inheritance tax is paid by the person who receives the inheritance, typically at rates that vary based on the beneficiary's relationship to the deceased.
Texas has never had an inheritance tax.
As of 2026, only five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa repealed its inheritance tax effective January 1, 2025.
If you inherit money, property, or accounts from someone who died in Texas, you owe no state tax on what you receive, regardless of the amount. If the deceased owned property in a state that does have an inheritance tax, you may owe that state's tax on the property located there, even if you live in Texas.
Texas Has No State Income Tax
Texas is one of nine states with no state income tax. This means:
- No state income tax return for the deceased's final year
- No state income tax return for the estate
- No state income tax on distributions from the estate to beneficiaries
The only income tax filings required are federal: the final Form 1040 for the year of death, and Form 1041 if the estate earns more than $600 in income after death.
Federal Estate Tax in 2026
The federal estate tax is the only estate-level tax that could apply to a Texas resident's estate.
Exemption. The federal estate tax exemption for deaths in 2026 is $15,000,000 per person. This was set by the One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, which amended IRC § 2010(c)(3). The exemption was $13,990,000 in 2025.
Rate. The top federal estate tax rate is 40% on amounts above the exemption.
Filing. The filing form is IRS Form 706 (United States Estate Tax Return). It is due 9 months after the date of death. A 6-month extension is available by filing Form 4768, but any estimated tax owed must still be paid by the 9-month deadline.
Portability. A surviving spouse can inherit the deceased spouse's unused federal exemption through a process called portability. To elect portability, the executor must file a federal Form 706, even if no federal estate tax is owed. A simplified late election procedure is available within 5 years of death under Rev. Proc. 2022-32. This effectively gives a married couple a combined $30 million exemption.
Who actually owes it. Fewer than 0.1% of deaths trigger a federal estate tax filing obligation. For the vast majority of Texas families, the federal estate tax is not a factor.
Federal Income Tax After Death
The estate tax is separate from income tax. Both can apply.
Final Form 1040. The deceased's final federal income tax return covers January 1 of the year of death through the date of death. It is due April 15 of the following year, the same as any other individual return. A 6-month extension is available via Form 4868.
Estate income tax, Form 1041. Once someone dies, the estate becomes a separate taxpayer. If the estate earns more than $600 in income after death (interest, dividends, rent, capital gains from selling assets), it must file Form 1041, the U.S. Income Tax Return for Estates and Trusts. The estate needs its own Employer Identification Number (EIN), separate from the deceased's Social Security number.
Form 56. The executor should file Form 56 with the IRS to notify them of the fiduciary relationship. File it promptly after appointment.
Form 1310. If you are claiming a refund on a deceased person's final return and you are not the court-appointed executor or a surviving spouse filing jointly, you need to file Form 1310 with the return.
Qualifying Surviving Spouse status. If you were widowed and have a dependent child, you may file using the "Qualifying Surviving Spouse" tax rates for two years after the year of death.
No Texas state returns. Because Texas has no state income tax, there is no state income tax return to file for the deceased or the estate.
Step-Up in Basis: The Community Property Advantage
Under IRC § 1014, inherited property receives a new cost basis equal to the fair market value at the date of death. This is called the step-up in basis, and it is one of the most significant tax benefits in the federal code for inherited assets.
How it works. If someone bought stock for $50,000 and it was worth $200,000 when they died, the heir's basis in that stock is $200,000. If the heir sells it for $205,000, they owe capital gains tax on only $5,000, not $155,000.
The community property double step-up. Texas is a community property state. Under IRC § 1014(b)(6), when one spouse dies, both halves of community property receive a step-up in basis - not just the deceased spouse's half.
Here is why that matters:
A couple buys a home for $200,000 as community property. At the death of one spouse, the home is worth $600,000.
- In a community property state (Texas): The surviving spouse's basis in the entire home becomes $600,000. If they sell for $610,000, the capital gain is $10,000.
- In a common-law state: Only the deceased spouse's half gets a step-up. The surviving spouse's half retains its original basis. The surviving spouse's basis is $100,000 (their original half) + $300,000 (stepped-up half) = $400,000. If they sell for $610,000, the capital gain is $210,000.
That is a $200,000 difference in taxable gain on the same house. The community property double step-up is a real financial advantage for Texas families, and it applies to all community property, not just real estate.
Tax Forms and Deadlines
| Tax | Form | Deadline | Extension |
|---|---|---|---|
| Federal estate tax | 706 | 9 months after death | 6 months via Form 4768 |
| Final federal income tax | 1040 | April 15 of following year | 6 months via Form 4868 |
| Estate income tax (federal) | 1041 | April 15 of following year | 5.5 months via Form 7004 |
| Texas state estate tax | None | N/A | Texas has no state estate tax |
| Texas state income tax | None | N/A | Texas has no state income tax |
| Fiduciary notification | 56 | Promptly upon appointment | N/A |
Medicaid Estate Recovery (MERP) in Texas
While Texas has no estate or inheritance tax, Medicaid estate recovery is a real financial issue for some Texas families.
If the deceased received Texas Medicaid benefits (managed by the Texas Health and Human Services Commission, HHSC), the state may file a claim against the probate estate to recover what it paid for nursing home care, home and community-based services, and related Medicaid expenses.
How it works. Medicaid recovery claims are Class 7 in the Texas claim priority order. They are paid after funeral expenses, administration costs, secured claims, child support, taxes, and confinement costs, but before general unsecured creditors.
Homestead protection. Recovery is deferred while any of the following live in the homestead:
- The surviving spouse
- A child under 21
- A blind or disabled child of any age
Hardship waiver. If the homestead is valued at less than $100,000, families can apply for a hardship exemption from HHSC. The waiver is not automatic; it must be requested and approved.
What MERP can reach. MERP claims apply to the probate estate only. Assets that pass outside probate (life insurance to a named beneficiary, retirement accounts with beneficiary designations, jointly held accounts, assets in trust) are generally not subject to MERP recovery.
If the deceased received Medicaid benefits, consult an elder law attorney before distributing any estate assets.
Gift Tax Exclusion
The federal gift tax annual exclusion for 2026 is $19,000 per recipient. A person can give up to $19,000 to any number of people each year without filing a gift tax return or reducing their lifetime estate tax exemption. A married couple can jointly give $38,000 per recipient.
Texas has no state gift tax.
Lifetime gifting can reduce the size of an estate over time, though for most Texas families the $15 million federal exemption makes this less of a concern for estate tax purposes than it is in states like Massachusetts, where the threshold is $2 million.
Estate Planning Considerations for Texas Residents
Because Texas has no state estate tax, no inheritance tax, and no state income tax, the planning environment is simpler than in many states. A few considerations still matter:
Community property agreements. Spouses can sign a community property with right of survivorship agreement, which causes all community property to pass directly to the surviving spouse outside probate. Combined with the double step-up in basis, this is a powerful and simple estate planning tool.
TOD deeds. Texas allows transfer-on-death deeds for real property (Tex. Est. Code Ch. 114). Filing a TOD deed means the property transfers to the named beneficiary at death without probate. The deed is revocable during the owner's lifetime.
Trusts. A revocable living trust avoids probate in Texas, but does not reduce federal estate tax. The trust's assets are still counted in the taxable estate. For estates near the $15 million federal threshold, an irrevocable trust or other advanced planning may be worth considering with an estate planning attorney.
Beneficiary designations. Review beneficiary designations on retirement accounts, life insurance, POD bank accounts, and TOD securities registrations. These designations override the will. An outdated beneficiary designation is one of the most common estate planning mistakes.
Frequently Asked Questions
Does Texas have an estate tax?
No. Texas does not have a state estate tax. The former pick-up tax under Tax Code Ch. 211 was eliminated when the federal credit for state death taxes was phased out by EGTRRA in 2001. No standalone state estate tax exists.
Does Texas have an inheritance tax?
No. Texas has never had an inheritance tax. The five states with inheritance taxes as of 2026 are Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa repealed its inheritance tax effective January 1, 2025.
What is the federal estate tax threshold in 2026?
$15,000,000 per person, set by the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025). The top rate is 40%. Form 706 is due 9 months after death.
Do I need to file a Texas tax return for the estate?
No. Texas has no state income tax, no state estate tax, and no state inheritance tax. The only tax returns required are federal: the final Form 1040, Form 1041 if the estate earns income, and Form 706 if the estate exceeds $15 million.
What is the community property double step-up?
Under IRC § 1014(b)(6), when one spouse dies in a community property state like Texas, both halves of community property receive a step-up in basis to fair market value at the date of death. In common-law states, only the deceased spouse's half gets a step-up. This can save the surviving spouse significant capital gains tax when selling inherited community property.
What to Do Next
If you are an executor or a family member managing the estate of someone who recently died in Texas, here is the order of operations for the tax side:
- Confirm that no state tax returns are needed. Texas has no state estate tax, no inheritance tax, and no income tax.
- If the estate exceeds $15 million, contact a Texas estate attorney and CPA immediately. Form 706 is due 9 months after death.
- If the deceased received Medicaid benefits, understand what HHSC may claim from the probate estate before distributing assets.
- Obtain an EIN for the estate before any estate income is received after death.
- File the final federal Form 1040 for the year of death.
- Take advantage of the community property double step-up when valuing inherited assets.
For the full sequence of tasks after a death, see the complete guide to what to do when someone dies in Texas.
Kaira organizes every step for your state — deadlines, forms, and next actions — so nothing gets missed. See how it works.
This guide reflects Texas and federal estate tax law as of April 2026, including the One Big Beautiful Bill Act (P.L. 119-21). Tax laws change. For estates near the $15 million federal threshold or with complex community property issues, consult a Texas-licensed estate planning attorney and a CPA.
Sources: Tex. Tax Code Ch. 211 (repealed state estate tax); IRC § 2010(c)(3) (Federal Estate Tax Exemption); IRC § 1014 (Step-Up in Basis); IRS Publication 559; texasattorneygeneral.gov; ssa.gov