It should be recognized that inherited money might or might not be taxable in Maryland—it changes entirely in line with who receives it and how much is passed down. Maryland stands out among states for applying both estate tax and inheritance tax. Yet, not every beneficiary ends up paying.
Two central elements influence the outcome:
It is correct that estate tax is paid by the estate before assets reach any heirs. In 2024, if the total value stays within the $5 million Maryland estate tax limit, the estate itself is spared from taxation. However, if the mentioned threshold is crossed, taxes may be due before distribution.
Inheritance tax, on the other hand, is handled differently. It applies after the transfer—meaning the recipient might owe a share in parallel to their legal standing.
Inheritance tax in Maryland only targets non-exempt individuals. The tax rate is currently 10%, applied to the value of what was inherited. Yet not everyone is included:
So if the person who passed away left property to a lifelong friend or a cousin, that recipient could face a 10% tax. On the other side, if the assets went to a child or sibling, there would usually be no inheritance tax in Maryland.
As a final note, inherited money is not counted as taxable income at the federal level. But earnings made from inherited assets—like interest or capital gains—should be reported. For example, if inherited cash earns interest in a savings account, only the interest is taxed. If you need any assistance with inheritance tax or estate tax, contact Watter CPA today.
