Ohio Inheritance Tax What Retiree's Need to Know

People call us after losing a parent or a spouse, and one of the first questions they ask is whether they owe taxes on what they're about to receive.

For Ohio residents, the short answer is no. Not to Ohio.

But "no Ohio inheritance tax" does not mean no taxes period. There are federal rules, rules from other states, and asset-specific issues that can create real tax consequences depending on what you inherit and what you do with it next.

I've seen clients sell inherited property at the wrong time and wipe out a stepped-up basis they didn't know they had. I've seen people take a large inherited IRA distribution in year one and push themselves into a bracket they didn't expect. These are fixable problems, but only if you understand the rules before you start making decisions.

So let's walk through the Ohio inheritance tax rules and everything else that actually applies.

Does Ohio Have an Inheritance Tax?

No. Ohio has no inheritance tax and no estate tax.

Ohio actually had a state estate tax for decades, but it was repealed effective January 1, 2013. Before repeal, Ohio taxed estates above $338,333 at rates up to 7%. That law is gone.

So if you receive an inheritance from an Ohio resident, Ohio is not collecting anything on that transfer.

The question becomes: what other taxes might apply?

Estate Tax vs. Inheritance Tax: What Is the Difference?

These two terms get used interchangeably. They are not the same thing.

Ohio has neither. The federal government has an estate tax but no inheritance tax.

What If You Inherit from Someone in Another State?

Here is where it gets more complicated for some Ohio residents.

A handful of states still have inheritance taxes. Those taxes follow the deceased person's state of residence, not yours. If someone who lived in one of those states left you money or assets, you may owe tax to that state even though you live in Ohio.

Kentucky is the one most relevant to Ohio residents given the shared border. If a parent in Northern Kentucky left you money and you're in Cincinnati, you may owe Kentucky inheritance tax depending on the amount and your relationship.

Check with an advisor or attorney familiar with that state before you distribute anything.

Federal Estate Tax: What Ohio Residents Need to Know

Ohio may be out of the picture, but the federal government is not.

The federal estate tax applies to estates above $13.99 million per individual in 2025, or $27.98 million for a married couple. Estates above that threshold pay federal tax at rates ranging from 18% to 40% on the amount over the exemption.

For most Ohio families, the federal estate tax is not a concern. But for clients who have built significant wealth through a business, investment portfolio, real estate holdings, or some combination, it is worth understanding.

A few things worth knowing:

The current exemption levels were set by the 2017 Tax Cuts and Jobs Act. They were scheduled to drop roughly in half at the end of 2025 without Congressional action. Legislation since then has affected where that number currently stands. If you have a large estate, talk to your advisor about where the current exemption sits and whether your estate plan accounts for it.

Any lifetime gifts you make reduce your available estate tax exemption. The 2025 annual gift exclusion is $19,000 per recipient. Gifts up to that amount do not count against your lifetime exemption. For clients with significant assets, annual gifting to children and grandchildren is a straightforward way to reduce the size of a taxable estate over time.

Other Taxes on Inherited Assets in Ohio

No inheritance tax does not mean no taxes. Here is where Ohio residents most often run into issues.

Stepped-Up Basis and Capital Gains

When you inherit an asset, its cost basis is stepped up to the fair market value on the date of death. This is one of the most valuable provisions in the tax code, and most people do not realize how significant it is.

Here is a real example. Say your father bought a rental property 30 years ago for $80,000. It's worth $400,000 when he passes. If he had sold it himself, he would have owed capital gains on $320,000 of appreciation. When you inherit it instead, your basis resets to $400,000. If you sell it at or near that value, your taxable gain is close to zero.

The stepped-up basis applies to stocks, real estate, and other appreciated assets. It does not apply to IRAs or pre-tax retirement accounts.

The practical rule: sell inherited assets sooner rather than later. Every month that passes after the date of death, more appreciation occurs. That post-death appreciation is taxable when you sell.

Inherited Retirement Accounts

This is where I see the most costly mistakes.

If you inherit an IRA or 401(k) from a spouse, you can roll it into your own account and treat it as your own. Your timeline and RMD rules apply.

If you're a non-spouse beneficiary, such as an adult child, the SECURE Act 10-year rule applies. You have 10 years to fully distribute the inherited account. For accounts that were already taking required minimum distributions at the time of death, the IRS requires annual distributions throughout the 10-year period, not just a lump sum at the end.

Every distribution from an inherited IRA is ordinary income. Federal income tax applies, and Ohio income tax applies on top of that. Ohio taxes IRA distributions as regular income.

So here is the planning opportunity most people miss. If you dump the entire account in year one, you could push yourself into a significantly higher bracket. If you spread distributions across 10 years, you control the tax hit year by year. The difference between those two approaches can be tens of thousands of dollars.

For clients with large IRAs who want to protect what they leave behind, an IRA trust named as the beneficiary is worth a conversation with an estate planning attorney. Done correctly, it preserves the 10-year stretch, taxes distributions at the beneficiary's individual rate rather than trust tax rates, and provides the same four asset protections as a sub trust: divorce, bankruptcy, lawsuits, and Medicaid.

Ohio Property Taxes on Inherited Real Estate

Ohio does not trigger a reassessment when a property transfers through inheritance. But that does not mean the assessment is frozen indefinitely.

Ohio counties conduct a full reappraisal every six years and a triennial update every three years. Your inherited property will be assessed at the next scheduled update regardless of when ownership changed. If the property has appreciated significantly, expect the tax bill to change at that point.

Ohio does offer a homestead exemption for residents 65 and older or those who are totally disabled. If you inherit a home, plan to live in it as your primary residence, and qualify by age, this reduces your taxable property value. Contact your county auditor to apply. The exemption does not transfer automatically with the deed.

For more on the Ohio homestead exemption, the Ohio Department of Taxation has the current income thresholds and filing process.

Income-Producing Inherited Assets

If you inherit rental properties, dividend-paying investments, or a business interest, you now own something that generates taxable income starting the day you own it. That income flows onto your return the year you receive it.

For Ohio residents already in retirement and stacking Social Security, RMDs, and other income, adding rental income on top of that affects your tax bracket and can affect your Medicare premiums through IRMAA. Plan for it before you own it.

Special Situations

Multi-state property follows the rules of the state where it is located. If the deceased owned real estate in Kentucky, that property is subject to Kentucky's laws regardless of where either of you lived.

Business interests in closely held companies create a liquidity problem that most families do not anticipate. If the estate owes federal estate taxes and the primary asset is a business, there may not be enough liquid assets to pay the bill without selling something. Life insurance owned by an irrevocable trust is often the most practical solution to this, and it has to be structured in advance.

If you want to disclaim an inheritance, you have nine months from the date of death to do it. A disclaimer passes the assets to the next beneficiary in line. This can make sense if you do not need the money, if your own estate is already large, or if your children are in a lower bracket and would benefit more from the assets.

Common Questions

I live in Ohio but the person who left me money lived in Pennsylvania. Do I owe Pennsylvania inheritance tax?

Possibly. Pennsylvania taxes most beneficiaries, including children, at 4.5%. Spouses are exempt. The tax is based on the value of what you receive, and it applies to assets that were owned in Pennsylvania or by a Pennsylvania resident.

The estate is above the federal exemption. Who writes the check?

The estate files a federal estate tax return and pays the tax before distributing assets to heirs. Heirs do not pay the tax directly. The estate does. This is why estate liquidity matters when the estate is large.

Can I reduce my own Ohio estate before I pass?

Yes. Annual gifts up to $19,000 per recipient move money out of your estate without touching your lifetime exemption. Irrevocable trusts remove assets from your estate entirely. Charitable strategies such as donor-advised funds or charitable remainder trusts reduce the estate and in some cases generate income for you in the meantime. Our tax planning and estate planning process covers all of this.

I inherited a house. Should I sell it or keep it?

That depends on your situation. The stepped-up basis makes selling soon after death the most tax-efficient move if you do not plan to live in it. If you hold it and rent it, you carry the rental income and property tax obligations going forward. If you plan to move in, the homestead exemption becomes relevant once you qualify. There is no single right answer, but there is a right order of operations: understand the basis first, then decide.

Here's What Matters

• Ohio has no inheritance tax and no estate tax. It was repealed in 2013.
• If you inherit from someone in Kentucky, Pennsylvania, Maryland, Nebraska, or New Jersey, you may owe that state's inheritance tax regardless of where you live.
• The federal estate tax applies to estates above $13.99 million per individual in 2025. Most Ohio families are below this threshold.
• The stepped-up basis resets your cost basis on inherited assets to the date-of-death value. Sell sooner rather than later to preserve that benefit.
• Inherited IRAs come with a 10-year distribution rule for non-spouse beneficiaries. Spreading distributions across 10 years is almost always better than taking it all at once.
• Ohio income tax applies to IRA distributions, including distributions from inherited IRAs.
• Ohio property is reassessed on a six-year cycle. Inheriting real estate does not freeze the assessment.
• An IRA trust, structured correctly, preserves the 10-year rule for inherited retirement accounts while protecting assets from divorce, bankruptcy, lawsuits, and Medicaid.

The clients who handle inherited wealth well are the ones who slow down, understand what they have, and plan before they act. There is rarely a decision that needs to be made the same week. Take the time to look at the full picture.

If you have questions about how an inheritance fits into your retirement plan, or if you want to structure your own estate to reduce the tax burden on your heirs, we are glad to take a look. As a fee-only, fiduciary firm, we do not earn commissions. Our advice does not change based on what products you buy.

👉 If you would like to get a FREE retirement assessment, click the link to schedule your 20-minute call to start the retirement assessment process.

Gudorf Financial Group is a fee-only, fiduciary retirement planning firm based in Dayton, Ohio. We work with clients in the Dayton and Cincinnati area and nationwide via Zoom.