Key Takeaways
- Inheriting assets in Maryland involves federal step-up in basis rules for non-retirement assets, Maryland inheritance tax at 10% for certain non-lineal beneficiaries, Maryland estate tax on estates exceeding $5 million, and separate federal rules for inherited retirement accounts.
- Under IRC Section 1014, non-retirement capital assets receive a step-up in cost basis to fair market value on the date of the decedent’s death, which can eliminate embedded capital gains for the heir.
- Traditional inherited IRAs and pre-tax 401(k) balances do not receive a step-up and remain subject to ordinary income tax on distributions.
- Under the SECURE Act, non-spouse beneficiaries who are not eligible designated beneficiaries must fully distribute an inherited IRA by December 31 of the 10th year after the original owner’s death.
- Maryland is among the few states that impose both a state estate tax and a state inheritance tax; spouses, children, grandchildren, parents, siblings, and other direct lineal relatives are generally exempt from the inheritance tax.
- Maryland estate tax returns are generally due nine months after the date of death, with extensions available.
Inheriting assets in Maryland: three envelopes, three sets of rules
Inheriting assets in Maryland often begins the same way. A Maryland family loses their father in early 2026. Over the following weeks, three envelopes arrive at his son’s house. The first is from a brokerage firm listing an inherited IRA. The second is from a title company holding the deed to a Silver Spring rental property. The third is from a life insurance carrier. The son’s first question is whether he should sell the rental property before the basis “resets.” His second question is when he has to start taking money out of the IRA.
However, the answers are different for each envelope, and one carries longer implications than the others. Federal rules govern income tax and step-up in basis. Maryland rules govern state inheritance tax and estate tax. The SECURE Act governs inherited retirement accounts, and this is the layer with the longest tail. Under the SECURE Act of 2019 and IRS Final Regulations effective 2024, non-spouse heirs who are not eligible designated beneficiaries must fully distribute an inherited IRA or 401(k) within 10 years of the original owner’s death. That single change reshapes the tax picture for the household not for a single year but for a full decade of distributions.
This guide covers what to know after inheriting assets in Maryland: how cost basis works, how different asset types are taxed, Maryland’s inheritance and estate tax structure, why titling matters, and how the SECURE Act 10-year rule can affect heirs of retirement accounts for a decade after the inheritance. For a coordinated review of an inheritance alongside your existing plan, visit our retirement income planning service page. Consult a qualified tax professional and an estate attorney regarding your specific situation.
What happens to cost basis when someone dies?
When inheriting assets in Maryland, cost basis rules matter. Under IRC Section 1014, non-retirement capital assets inherited by a beneficiary receive a step-up in cost basis to their fair market value on the date of the decedent’s death. For an heir, this can eliminate embedded capital gains that accumulated during the original owner’s lifetime.
Worked Example
A Maryland parent bought a Bethesda home in 1985 for $180,000. At the time of death in 2026, the fair market value is $920,000. Under the step-up in basis rules, the heir’s cost basis for future tax purposes is generally the $920,000 date-of-death value, not the $180,000 original purchase price. If the heir sells the home shortly after inheriting for $920,000, the taxable capital gain is generally zero.
In addition, step-up in basis applies to a broad range of capital assets, including real estate, publicly traded securities in taxable brokerage accounts, and privately held business interests. It does not apply to traditional IRAs, pre-tax 401(k) balances, U.S. savings bond accrued interest, or the earnings portion of non-qualified annuities. Those assets are treated as income in respect of a decedent and taxed as ordinary income when distributed to the heir.
As a result, for Maryland heirs of appreciated property in Montgomery, Howard, Frederick, or Baltimore counties, where real estate values have risen substantially over decades, step-up in basis can be one of the more significant tax benefits associated with an inheritance. Documenting the date-of-death fair market value with a qualified appraisal is what makes the step-up defensible if the IRS later reviews the return.
How different inherited assets are treated
The tax treatment of an inheritance depends on the asset type. This table summarizes the categories heirs commonly encounter.
| Asset type | Step-up in basis? | Tax treatment to heir | Distribution requirements |
|---|---|---|---|
| Real estate | Yes, full step-up to date-of-death value | Capital gains tax only on appreciation from stepped-up basis | None from the IRS; Maryland transfer taxes may apply |
| Taxable brokerage accounts | Yes, full step-up on individual holdings | Capital gains tax only on appreciation from stepped-up basis | None |
| Traditional IRA / pre-tax 401(k) | No | Ordinary income tax on distributions at heir’s federal, Maryland state, and county rates | SECURE Act 10-year rule for non-spouse beneficiaries |
| Roth IRA | Not applicable | Qualified distributions generally federally income tax-free | SECURE Act 10-year rule for non-spouse beneficiaries |
| Life insurance | Not applicable | Death benefit generally not subject to federal income tax | None; may be included in estate for estate tax |
| Non-qualified annuity | Only on original after-tax premium; not on accumulated earnings | Earnings portion taxed as ordinary income to heir | Varies by contract and beneficiary election |
| Jointly-owned property (JTWROS) | Partial, on the deceased owner’s share | Depends on structure and ownership percentages | Passes automatically outside probate to surviving joint owner |
Table is a general summary and does not cover every exception or planning situation. Individual circumstances vary; consult a qualified tax professional regarding your specific inheritance.
Overall, the key division is between assets that qualify for step-up (real estate, taxable brokerage, business interests) and assets that carry ordinary income tax exposure (traditional retirement accounts, non-qualified annuity earnings). An heir who inherits a mix of both will generally find it advantageous to sell stepped-up assets close to the date of death with minimal tax impact, while managing retirement account distributions across the 10-year window to control ordinary income brackets year by year.
Maryland inheritance tax and Maryland estate tax
Maryland imposes both a state estate tax on estates exceeding $5 million and a state inheritance tax at 10% on transfers to certain non-lineal beneficiaries. As of 2025, Maryland is among the few states that levy both. Verify current thresholds and rates with the Maryland Comptroller.
Maryland estate tax
Maryland estate tax applies to the estate itself, before assets are distributed to heirs. The Maryland exemption is $5 million per decedent as of 2025. Estates below the exemption owe no Maryland estate tax; estates above are taxed at graduated rates up to 16%. Portability between spouses is available under Maryland law, allowing a surviving spouse to use a deceased spouse’s unused exemption if a proper Maryland estate tax return is timely filed.
By contrast, federal estate tax is a separate calculation. The federal exemption exceeds $13 million per individual for 2025 under current law and is subject to change. An estate can owe Maryland estate tax without owing federal estate tax if it falls between the two thresholds.
Maryland inheritance tax
Maryland inheritance tax applies to transfers received by certain beneficiaries, at a rate of 10% of the value transferred. Whether an inheritance is subject to the tax depends on the recipient’s relationship to the decedent.
Generally exempt: spouses, children and their spouses, grandchildren and other direct lineal descendants, parents, grandparents, stepchildren and stepparents, and siblings.
Generally subject to the 10% tax: nieces, nephews, cousins, aunts and uncles, in-laws, unrelated individuals, and other non-lineal beneficiaries.
Timing Note
Maryland estate tax returns are generally due nine months after the date of death, with extensions available. Missing the deadline can trigger penalties and interest that reduce the amount ultimately received by heirs. For estates that may approach the $5 million Maryland exemption, gathering appraisals, brokerage statements, and beneficiary information early is generally advisable.
Not sure how an inheritance changes your plan?
Our free three-step retirement evaluation reviews your investments, uncovers tax planning opportunities, and helps assess your retirement income, so you can see how the pieces fit together.
Start Your Free Retirement EvaluationTitling inherited assets in Maryland and why it matters
How inherited assets are titled affects future step-up in basis when the heir eventually passes, creditor exposure, Medicaid planning eligibility, and beneficiary designations for the next generation.
Inherited IRA titling. An inherited IRA must be retitled to reflect its inherited status, generally in a format such as “Deceased Name, deceased, IRA for the benefit of Beneficiary Name.” Under IRS rules, non-spouse beneficiaries cannot commingle an inherited IRA with their own IRA and cannot make new contributions to an inherited IRA. Failing to retitle correctly can lead to the entire balance being treated as taxable in the year of distribution.
Real estate titling. Inherited real estate can be titled individually, jointly, through a revocable living trust, through an LLC, or through other structures. Each carries different implications for future step-up in basis, creditor exposure, and probate at the heir’s later death. Coordination with a Maryland estate attorney is generally worthwhile before finalizing titling on inherited property.
Taxable brokerage titling. Inherited brokerage assets can be held individually, transferred to a joint account, or moved into a trust. Each choice affects step-up in basis at the heir’s later death, beneficiary designations, and Maryland probate treatment for the next generation.
The SECURE Act 10-year rule and what it means for heirs
Before the SECURE Act, a non-spouse beneficiary who inherited an IRA could stretch distributions across their own life expectancy. An adult child inheriting at age 55 could spread distributions over 30 years or more, keeping annual taxable income relatively low.
The SECURE Act, passed in 2019, changed that. Non-spouse beneficiaries who are not eligible designated beneficiaries must fully distribute an inherited IRA by December 31 of the 10th year after the original owner’s death. IRS Final Regulations effective 2024 additionally require annual RMDs during years one through nine of the window when the original owner had already reached their required beginning date. Verify current inherited IRA rules with the IRS Retirement Topics on Beneficiaries.
Why this matters. An adult child, age 45, inherits a $500,000 traditional IRA from a parent who had already started RMDs. That child must empty the account within 10 years, generating roughly $50,000 or more of additional taxable income each year during their peak earning years. If they are already in a mid-to-high federal bracket, the inherited distributions may push them into a higher bracket, add Maryland state and county tax on top of federal, and potentially trigger IRMAA-based Medicare premium increases if they are on Medicare. For related planning that reduces the traditional IRA balance passed to heirs, see our Roth conversion strategy guide and our RMD planning guide.
Who is exempt from the 10-year rule
Certain beneficiaries can continue to use life-expectancy distributions under prior rules. These eligible designated beneficiaries include the surviving spouse, a minor child of the decedent (until age 21, then the 10-year clock starts), a disabled or chronically ill beneficiary, and an individual not more than 10 years younger than the decedent, such as a sibling close in age.
Surviving spouse options
A surviving spouse has more flexibility than any other beneficiary. Under current federal law, a surviving spouse who inherits an IRA can roll it into their own IRA, treat it as their own by re-titling, or remain a named beneficiary and hold the account as an inherited IRA. Remaining a beneficiary can be useful if the survivor is under age 59½ and may need distributions, because inherited IRA distributions to a spouse are not subject to the 10% early distribution penalty.
Five common mistakes after inheriting assets
Even careful families make missteps when inheriting assets in Maryland. Below are five of the most common, along with the reason each one matters.
Missing Maryland tax deadlines or confusing inheritance tax with estate tax
These are two separate Maryland taxes. Estate tax applies to the estate itself before distribution; inheritance tax applies to certain beneficiaries after distribution. An estate can owe one, both, or neither. Maryland estate tax returns are generally due nine months after the date of death, and missing the deadline can trigger penalties and interest.
Selling appreciated assets without documenting date-of-death value
Without a qualified appraisal or brokerage statement showing the date-of-death value, the step-up in basis can be difficult to substantiate if the IRS reviews the return. Getting proper valuations early is generally worth the effort.
Failing to retitle inherited retirement accounts correctly
An inherited IRA that is not properly retitled, or that a non-spouse beneficiary rolls into their own IRA, can lead to the entire balance being treated as a taxable distribution in the year of the error.
Taking a large inherited IRA distribution in a single year
A lump-sum distribution can push the heir into a substantially higher combined federal and Maryland bracket and can trigger IRMAA-based Medicare premium increases two years later. Spreading distributions across the 10-year window is one way to manage this exposure.
Making disclaimer decisions without professional guidance
A qualified disclaimer allows an heir to refuse an inheritance, redirecting it to the next beneficiary. Once accepted, an inheritance cannot generally be disclaimed. Disclaimers must be executed within specific time frames and must meet specific requirements to be qualified.
Recently Inherited Assets in Maryland?
An inheritance can reshape your retirement picture for a decade or more. Our free retirement evaluation reviews your investments, tax planning opportunities, and helps assess your retirement income so you can move forward with a clearer plan.
Start Your Free Retirement EvaluationReferences
Sources and Further Reading
The rules discussed in this article come from the following sources. Rules and figures are subject to change; verify current information before making planning decisions.
- IRS Publication 559: Survivors, Executors, and Administrators. Federal rules for handling a decedent’s assets, step-up in basis, and estate tax basics.
- Publication 590-B from the IRS: Distributions from Individual Retirement Arrangements. Inherited IRA rules, the 10-year rule, and required minimum distribution calculations.
- Retirement Topics on Beneficiaries (IRS). Eligible designated beneficiary categories and post-SECURE Act inherited account rules.
- Maryland Comptroller: Estate and Inheritance Tax. Maryland estate tax exemption, inheritance tax rates, and exempt beneficiary categories.
- Maryland Register of Wills: Administration of Estates. Probate procedures, filing deadlines, and administrative steps in Maryland.
- SECURE 2.0 Act of 2022. Statutory text of the SECURE 2.0 Act, which modified RMD ages and other retirement account rules.
Common Questions
Frequently Asked Questions
01 Do you pay taxes on inheritance in Maryland?
Maryland imposes an inheritance tax at 10% on transfers to certain non-lineal beneficiaries such as nieces, nephews, cousins, and unrelated individuals. Spouses, children, grandchildren, parents, siblings, and other direct lineal relatives are generally exempt. Separately, distributions from inherited traditional IRAs and pre-tax 401(k) balances are taxable as ordinary income to the heir. Non-retirement assets that receive a step-up in basis can generally be sold with little capital gains tax if sold near the date-of-death value.
02 What is the Maryland inheritance tax rate?
The Maryland inheritance tax rate is 10% of the value transferred to non-exempt beneficiaries. The tax applies to transfers to non-lineal beneficiaries such as nieces, nephews, cousins, aunts, uncles, in-laws, and unrelated individuals. Direct lineal descendants and ascendants, spouses, siblings, and stepchildren and stepparents are generally exempt. Rates and exemptions are set by Maryland statute and are subject to change.
03 Do you get a step-up in basis on inherited property in Maryland?
Yes, under current federal law and IRC Section 1014, non-retirement capital assets inherited by a Maryland resident generally receive a step-up in cost basis to the fair market value on the date of the decedent’s death. This applies to real estate, publicly traded securities in taxable accounts, mutual funds in taxable accounts, and other capital assets. Step-up does not apply to traditional IRAs, pre-tax 401(k) balances, or non-qualified annuity earnings. Documenting the date-of-death value with a qualified appraisal or brokerage statement is generally what makes the step-up defensible.
04 How long do you have to distribute an inherited IRA?
Under the SECURE Act, non-spouse beneficiaries who are not eligible designated beneficiaries must fully distribute an inherited IRA by December 31 of the 10th year after the original owner’s death. IRS Final Regulations effective 2024 additionally require annual required minimum distributions during years one through nine of the window when the original owner had already reached their required beginning date. Eligible designated beneficiaries, including surviving spouses, minor children of the decedent, disabled or chronically ill individuals, and individuals not more than 10 years younger, are exempt from the 10-year rule.
05 Does the surviving spouse have different options for an inherited IRA?
Yes. A surviving spouse can generally choose to roll an inherited IRA into their own IRA, treat the inherited account as their own by re-titling, or remain a beneficiary and hold the account as an inherited IRA. Remaining a beneficiary can be useful if the surviving spouse is under age 59½ and may need distributions, because inherited IRA distributions to a spouse are not subject to the 10% early distribution penalty. Which option fits depends on the surviving spouse’s age, cash flow needs, and existing retirement structure.
06 Do you have to pay federal estate tax on an inheritance in Maryland?
Federal estate tax applies only to estates exceeding the federal exemption, which is above $13 million per individual for 2025 under current law and is subject to change. Maryland imposes a separate state estate tax on estates exceeding $5 million. An estate can owe Maryland estate tax without owing federal estate tax if it falls between the two thresholds. Estate tax is paid by the estate before distribution; inheritance tax is a separate Maryland tax on certain beneficiaries after distribution.
07 When is Maryland estate tax due?
Maryland estate tax returns are generally due nine months after the date of death, with extensions available under Maryland Comptroller procedures. Missing the deadline can trigger penalties and interest. For estates that may approach the $5 million Maryland exemption, gathering appraisals, brokerage statements, and beneficiary documentation early in the nine-month window is generally advisable.
