Does Arizona Have an Estate or Inheritance Tax?

Arizona is one of the majority of states that collect neither an estate tax nor an inheritance tax. This article explains the difference between the two taxes, why Arizona no longer imposes either one, when the separate federal estate tax reaches an Arizona estate, and how inherited property is treated for income tax. It is part of estate planning in Arizona, which covers wills, trusts, and probate across the state.

Arizona has no estate or inheritance tax

Arizona’s tax code imposes transaction privilege (sales) tax, income tax, property tax, and several excise taxes, but it does not include an estate tax or an inheritance tax. The state’s taxation statutes, Arizona Revised Statutes Title 42, contain no chapter that levies a tax on estates or on inherited property.

Arizona once collected a limited estate tax, but it was never a charge on top of the federal bill. It was a “pick-up” tax equal to the credit that federal law allowed for state death taxes. When Congress phased out that federal credit in the early 2000s, the Arizona tax tied to it dropped to zero and stopped applying. Arizona has collected no estate tax on deaths since then, and it has never imposed a standalone inheritance tax.

The practical result is that an Arizona resident’s estate passes to heirs without any state-level death tax, and a person who inherits money or property from an Arizona estate reports nothing to the Arizona Department of Revenue for the inheritance itself. The absence of a death tax is separate from how title actually moves to the heirs: a smaller estate may be settled with an Arizona small estate affidavit, and real estate is often transferred outside probate with an Arizona beneficiary deed. Neither method changes the tax outcome, because no Arizona estate or inheritance tax applies either way.

Estate tax and inheritance tax are not the same thing

The two terms are often used interchangeably, but they describe different taxes paid by different people.

An estate tax is charged to the estate of the person who died, based on the total value of what they owned, before anything is distributed. An inheritance tax is charged to each person who receives property, based on what that individual inherits and sometimes on how closely related they were to the person who died.

Arizona imposes neither. A small number of other states still levy an inheritance tax, and a handful impose their own estate tax on top of the federal one. Whether one of those state taxes applies turns on where the person who died lived and where their property was located, not on where the heir lives. An Arizona resident who inherits from a relative in an inheritance-tax state can owe that state’s tax even though Arizona has none.

When the federal estate tax still applies

There is no Arizona estate tax, but the federal estate tax still exists and reaches large estates in every state. It is imposed by 26 U.S.C. § 2001 on the transfer of a decedent’s taxable estate, at graduated rates that top out at 40 percent.

Most estates never owe it, because the tax applies only to value above a large exemption. According to the IRS estate tax overview, the filing threshold is $13.99 million for deaths in 2025 and $15 million for deaths in 2026 (as of 2026). An estate below that figure owes no federal estate tax and generally files no estate tax return.

Because the exemption applies per person, a married couple can generally shield twice the individual amount from federal estate tax through planning. The size and structure of an estate determine whether federal tax is a concern; the amount any single heir receives does not.

How inherited money and property are taxed

Receiving an inheritance is generally not a taxable event for income tax. An inheritance is not counted as income on a federal or Arizona income tax return, so inheriting cash, a house, or an investment account does not by itself create a tax bill.

Two situations can still produce income tax later. First, income that an inherited asset earns after the death, interest, dividends, or rent, is taxable to the heir like any other income. Second, when an heir sells an inherited asset, capital gains tax can apply to the increase in value after the death.

Inherited property receives a “stepped-up” basis for this purpose. Under the IRS guidance on gifts and inheritances, the basis of property inherited from a decedent is generally its fair market value on the date of death. An heir who sells shortly after inheriting, at roughly that value, usually has little or no taxable gain, because the gain is measured only from the date-of-death value forward.

Inheriting from someone who lived in another state

Arizona’s lack of a death tax protects an estate administered in Arizona, but it does not override another state’s tax when that state has its own claim.

If the person who died lived in a state with an inheritance or estate tax, or owned real estate there, that state can tax the transfer under its own rules even when the heir lives in Arizona. Real property is generally taxed by the state where it sits. An Arizona resident who inherits a vacation home in a state that taxes estates may find that state’s tax applies to that property.

The reverse is also true. An out-of-state heir who inherits from an Arizona resident owes no Arizona death tax, because Arizona imposes none on the estate or on the transfer.