Source: asenat29, Wikimedia Commons

This article was originally published on April 30, 2015, and was updated on Feb. 16, 2016.

The inheritance tax is a tax that some U.S. states levy against inherited assets. It is not to be confused with the federal estate tax, which has become a political hot button and is sometimes referred to as an "inheritance tax." The federal estate tax, which the House of Representatives voted to repeal in April, is levied against -- you guess it -- the estate, and it only affects a tiny proportion of Americans. A state inheritance tax is assessed against an estate's beneficiaries, and it, too, affects a relative handful of American taxpayers.

Here are five more things to know about the inheritance tax:

  1. Recently, only eight states levied an inheritance tax: Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, and Tennessee. New Jersey levies not only an inheritance tax but also a state-level estate tax. Inheritance taxes have become rather valuable for the states that impose them. For example, in 2013, inheritance taxes generated close to $90 million in revenue for Iowa.

  2. The amount of the inheritance tax will likely depend on the value of the assets bequeathed and the relationship of the recipient to the bequeather. According to TurboTax, recent inheritance tax rates ranged from 1% to 20%. Spouses are generally exempt, and children may also be exempt or pay a lower tax rate. Typically, the less closely you're related to the deceased, the higher the tax rate you'll face. The folks at offer this example: "In Maryland, parents, siblings and other close relatives can inherit $40,000 tax-free, and pay just 1% of the market value of inherited property over that amount. Tax rates for more distant inheritors start at 13% for amounts over $25,000."

  3. And even within those states, not every heir will face the tax, as (much like the federal estate tax) it typically applies to inheritances above a certain threshold. Imagine that the inheritance tax in your state is 4% and the threshold is $1 million. If you receive $1.5 million, you'll only be taxed on the amount above $1 million, or $500,000. Thus your inheritance tax would be 4% of $500,000, which is $20,000.

  4. Inheritance taxes are generally due within nine to 18 months after the death of the bequeather. When assets are distributed from an estate, it's the job of the estate's executor to file the inheritance tax return.

  5. Besides the inheritance tax that some heirs will face, it's worth noting that if you inherit stocks or other assets to which capital gains taxes apply, any gains you realize when you sell them will be taxable to you. Your cost basis in them won't be the cost basis of the generous person who left them to you, though. If your Aunt Edna bought shares of Scruffy's Chicken Shack for $50 apiece and then left them to you when they were valued at $100 per share, then your cost basis per share will be $100, not $50. (That's referred to as a "stepped-up" cost basis.) If you sell them at $120, your taxable gain will be $20 per share, not $70.

The bottom line is that it's unlikely that you will face either the federal estate tax or a state inheritance tax. And if you do get hit with an inheritance tax, it's likely to be relatively modest, unless you've received assets from a total stranger. Still, be aware that each state's laws change all the time, and cash-strapped states may enact inheritance taxes or boost existing inheritance tax rates in order to generate more funds.

If you find yourself grumbling about the unfairness of estate or inheritance taxes, consider the argument of their proponents. For example, William Gates, Sr., father of Bill Gates, has spoken about how America invests heavily in research that fuels business growth. Says Gates: "It is clear that the folks who have become wealthy from this significant social investment did not do it alone. I believe their estates owe something back to the society that enabled the creation of that wealth."

Still, the taxation of estates and inheritances might be made simpler. As it is, inheritance taxes are often a second tax on an estate, after the estate tax. It might be more fair to simply tax the estate and then let heirs inherit tax-free. That's not how things are now, though, so be aware of inheritance taxes.