Inheriting a House? These States Can Make It More Expensive to Keep

Inheriting a house sounds wonderfully simple until the house starts sending bills. The mortgage may be gone, but property taxes, insurance, repairs and, in some states, inheritance taxes can quickly change the math.

The biggest surprise often comes from confusing owning the house with being able to afford the house. A property can arrive with no mortgage attached and still demand thousands of dollars a year, or create a tax bill that makes keeping it difficult. State rules can make that gap even wider, particularly for heirs who are not close relatives or who inherit valuable property.

Five States Still Have an Inheritance Tax

Only five states currently impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa eliminated its inheritance tax completely beginning in 2025, leaving these five as the remaining states with this type of tax.

An inheritance tax differs from an estate tax because the tax generally falls on the person receiving the property. The relationship between the heir and the person who died can change the rate dramatically. A surviving spouse often receives a full exemption, while a more distant relative or unrelated beneficiary can face a much larger bill. That distinction matters enormously with real estate because a house can represent a large inheritance even if the heir has little cash available to pay a tax.

Pennsylvania Can Put a Price on the House Itself

Pennsylvania offers a particularly clear example of why an inherited home can create a cash-flow problem. The state currently charges no inheritance tax on transfers to a surviving spouse, while transfers to direct descendants face a 4.5% rate, siblings face 12%, and other heirs generally face 15%.

Consider a purely hypothetical $400,000 house inherited by an adult child. A 4.5% inheritance tax would equal $18,000 before considering other assets, deductions or circumstances that could affect the actual calculation. The heir might own a valuable property while having nowhere near $18,000 sitting in a checking account. That can create an unpleasant choice: find the cash, borrow against the property, sell another asset or sell the house. The house may be paid off, but that does not make the tax bill disappear.

Kentucky Has Its Own Version of the Problem

Kentucky also taxes certain inheritances, and the amount depends on the beneficiary’s relationship to the deceased person and the value of the property. The state exempts some close relatives while applying different rates and exemptions to other classes of beneficiaries. Kentucky also taxes real estate located in Kentucky even when a nonresident owned that property.

That creates an easily missed wrinkle for families with property in more than one state. A person can live somewhere else, inherit a Kentucky house and still encounter Kentucky inheritance-tax rules because the real estate sits there. Kentucky allows a 5% discount when inheritance tax gets paid within nine months, and certain beneficiaries with larger liabilities can elect installment payments. The lesson is less about memorizing Kentucky’s rules than recognizing that the property’s location can matter just as much as the heir’s address.

Maryland Is Especially Interesting

Maryland deserves extra attention because it imposes both an estate tax and an inheritance tax. The state generally exempts transfers to close family members such as spouses, children, parents and grandparents from its 10% inheritance tax, while certain other beneficiaries can face that tax.

An estate tax works differently because the tax applies to the estate rather than simply charging the person who receives the house. Maryland’s rules also mean that an estate can encounter both types of taxes, although the state provides an interaction between the inheritance tax paid and the estate-tax calculation. For a family sorting through a valuable home and other assets, that distinction matters because the house may form part of a much larger taxable estate.

The House Can Get More Expensive Even Without an Inheritance Tax

Taxes connected directly to the inheritance are only part of the story. Property-tax rules can also change after someone inherits a home, depending on the state and the circumstances of the transfer. California provides a particularly useful example because Proposition 19 changed the rules for certain parent-child and grandparent-grandchild transfers.

Under current California rules, a qualifying family-home transfer can receive a property-tax exclusion, but the rules come with conditions. The family home must meet the requirements, the eligible heir generally must make it the principal residence, and the exclusion has a value limit based on the property’s existing taxable value plus an adjusted amount. California’s Board of Equalization lists the adjusted $1 million amount at $1,044,586 for transfers from February 16, 2025, through February 15, 2027.

That can make the difference between inheriting a manageable property-tax bill and inheriting a much larger one. The California rules also require specific filings, including a homeowners’ exemption claim within one year for the family-home exclusion. Missing paperwork can therefore become much more expensive than it looks sitting unopened on a kitchen counter.

A Paid-Off House Still Has a Carrying Cost

Even when no inheritance tax applies, keeping an inherited house requires a brutally practical calculation. Property taxes, homeowners insurance, utilities, landscaping, repairs and maintenance continue whether anyone lives there or not. An empty house can create its own headaches because insurers may impose different requirements for vacant properties, and deferred maintenance rarely becomes cheaper with age.

There is also the opportunity cost. An heir might love the house but have no use for a four-bedroom property several states away. Another heir might want to rent it but lack the time or appetite to become a landlord. Someone else might sell immediately because the cash would better fit their life. None of those choices makes the inheritance a failure. They simply recognize that a house is an asset that costs money to own.

The First Question Should Be More Practical Than Emotional

Before deciding to keep an inherited home, an heir should determine what the property actually costs each year. That means checking the current property-tax bill, insurance premium, utilities, maintenance needs and any association dues or special assessments. The next step involves checking the state and local rules that apply to the transfer itself.

The most dangerous assumption may be that keeping the house costs nothing because nobody owes a mortgage. A $300,000 or $500,000 house can look like a wonderful financial gift while quietly demanding thousands of dollars every year. Add an inheritance tax or a property-tax reassessment, and the financial picture can change quickly. The smartest decision may be to keep the house, sell it or rent it, but that decision should come after calculating the costs rather than simply admiring the keys.

An Inherited House Is an Asset, Not a Free Lunch

The phrase “inherited house” makes the property sound finished, paid for and ready to enjoy. In reality, the inheritance can mark the beginning of a new financial decision.

The state where the property sits can matter. The heir’s relationship to the deceased can matter. The property’s taxable value, the estate’s total value and the heir’s plans for the home can all matter, too. Five states still impose inheritance taxes, while several others impose estate taxes, and individual states can apply their own property-tax rules to inherited homes.

So before anyone decides that the family house is staying in the family forever, it is worth running the numbers. A house can carry wonderful memories and still be an expensive piece of real estate.