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When a loved one passes away and leaves behind property, you may be required to pay Iowa inheritance taxes. How much, or whether you pay any inheritance taxes at all, depends on the size of the inheritance and your relationship to the person that passed away.
The tax rate depends on the relationship between the decedent, or the person who died, and the beneficiary.
There is no tax due if the only people receiving assets from the decedent’s estate are a surviving spouse, or lineal ascendants and descendants, or adopted children or step-children.
If you inherit assets, personal property, or real estate from your spouse, your adopted parents, or your grandparents, great-grandparents, children, stepchildren, grandchildren, great-grand-children or other lineal ascendants or descendants you will not pay Iowa inheritance taxes.
For other relationships to the decedent, you will be subject to Iowa’s inheritance tax. Most common relationships that are subject to inheritance taxes are brothers, sisters, nieces, nephews, aunts, uncles, or cousins.
Those rates depend on the amount of assets inherited and the rate will also depend on the year that the descendent passed away. That is because Iowa’s inheritance taxes are slowly being phased out through 2025.
After January 1, 2025, there will be no Iowa inheritance tax charged. But inheritance taxes will apply for 2023 and 2024.
Below are the Iowa Inheritance Tax Rates for 2023 and 2024 for those who are subject to the tax:
2023 Iowa Inheritance Tax Rates |
|
| Amount Inherited | Tax Rate |
| $0 – $12,500 | 2.00% |
| $12,500 – $25,000 | 2.40% |
| $25,000 – $75,000 | 2.80% |
| $75,000 – $100,000 | 3.20% |
| $100,000 – $150,000 | 3.60% |
| $150,000+ | 4.00% |
For example, for a brother or sister of the decedent, an inheritance tax rate of 2% applies to amounts between $0-$12,500 in 2023.
For 2024, inheritance tax rates in Iowa will decrease again to the following:
2024 Iowa Inheritance Tax Rates |
|
| Amount Inherited | Tax Rate |
| $0 – $12,500 | 1.00% |
| $12,500 – $25,000 | 1.20% |
| $25,000 – $75,000 | 1.40% |
| $75,000 – $100,000 | 1.60% |
| $100,000 – $150,000 | 1.80% |
| $150,000+ | 2.00% |
Unlike Iowa’s income tax rates beginning in 2026, this rate of tax is not a flat rate.
Iowa’s inheritance tax is levied on the share going to a non-exempt beneficiary. This beneficiary is responsible for the payment of the tax. The tax must be paid to Iowa’s Department of Revenue on or before the last day of the ninth month after the death of the decedent. Once the tax is paid, the state will lift its lien on the estate so that the estate can be closed.
Here is a helpful checklist from the State of Iowa for documents that will be needed to file your inheritance tax return.
Until 2025, Iowa will remain one of the few states that charge an inheritance tax. However, the tax rates are relatively low. The more significant change from an inheritance is likely going to be deciding how to manage the inheritance with your current financial plan.
Did you inherit an IRA, 401(k), or Roth IRA that will be subject to new required annual distributions?
Did you inherit a brokerage account that will impact your future taxes with dividends, interest, and capital gains?
Did you inherit a property that you need help considering whether to sell or hold?
While taxes on an inheritance are certainly something to be aware of, understanding how to best put your inheritance to work for you, is where we provide the most help for our clients.