You’re sitting on the patio in Scottsdale, sun hitting the red rocks, and the thought hits you: How much is the government going to take when I’m gone? It’s a morbid thought for a Tuesday, but if you’ve built up a decent nest egg in the Grand Canyon State, it’s a valid one. You've probably heard horror stories from friends in New York or Oregon about "death taxes" eating half an inheritance.
So, let's cut to the chase. Does AZ have estate tax? The short answer? No. Arizona does not have a state estate tax.
Honestly, it’s one of the biggest reasons people flock here to retire. But wait—don't stop reading yet. Just because the state isn't knocking on your door doesn't mean you're totally in the clear. There are federal traps, "hidden" taxes on specific assets, and 2026 rule changes that could flip your entire plan upside down if you aren't paying attention.
The Great Arizona Repeal
Arizona used to have what experts called a "pick-up tax." Basically, the state would take a cut of whatever federal estate tax you owed. But that’s ancient history. Back on May 8, 2006, Governor Janet Napolitano signed SB 1170, which permanently killed the state's estate tax.
They didn't just pause it. They ripped the language right out of the Arizona statutes.
This means whether your estate is worth $50,000 or $50 million, the state of Arizona isn't going to bill your heirs a single cent in estate or inheritance tax. People often use those terms interchangeably, but they're different beasts. An estate tax is paid by your estate before anyone gets a check. An inheritance tax is paid by the person receiving the money. Arizona has neither.
The 2026 Federal Curveball: Enter the OBBBA
Now, here is where things get interesting—and a little complicated. While Arizona stays out of your pockets, Uncle Sam is a different story.
For years, we were all staring down a "sunset" provision from the 2017 Tax Cuts and Jobs Act. We thought the federal exemption was going to plummet in 2026, forcing families to scramble. But then came the One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025.
It changed the game.
Instead of the exemption dropping, it actually jumped. For 2026, the federal estate tax exemption is a staggering $15 million per person. If you're married, you and your spouse can shield $30 million from federal taxes.
- 2025 Exemption: $13.99 million
- 2026 Exemption: $15 million (thanks to the OBBBA)
- Tax Rate: Still a flat, heavy 40% on every dollar over that limit.
If your total net worth—including your house in Paradise Valley, your brokerage accounts, and that classic car collection—is under $15 million, you likely won't owe a dime to the IRS either.
The "Sneaky" Taxes Arizona Heirs Still Pay
"No estate tax" doesn't mean "no taxes at all." This is the part that trips people up. If you leave your daughter a Traditional IRA worth $1 million, she doesn't pay estate tax. But the second she starts taking money out of that account? The IRS (and Arizona) will treat it as ordinary income.
The state will take its 2.5% flat income tax, and the feds will take their cut, too.
Then there’s the issue of property in other states. Let's say you live in Mesa but kept a small vacation cabin in Oregon or a rental property in Washington. Even though you’re an Arizona resident, those states might still levy an estate tax on the property located within their borders.
It’s a mess. You can't just assume Arizona’s friendly laws follow you across state lines.
What About Gifting?
Arizona doesn't have a gift tax either. You can hand over a briefcase of cash (though maybe don't do that) to your nephew, and the state won't care. Federally, you have an annual exclusion of $19,000 per recipient for 2026.
You can give $19k to as many people as you want. If you go over that, you don't necessarily pay tax; you just start chipping away at that $15 million lifetime "shield" we talked about.
Why You Still Need a Plan (Even With Zero Tax)
If you aren't rich enough to trigger the 40% federal tax, you might think you're off the hook.
Wrong.
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Arizona’s probate system can be a nightmare if you die "intestate" (without a will). Even without a tax bill, your family could spend two years and thousands of dollars in court fees just to prove who gets your house.
Plus, there’s the "Step-Up in Basis." This is a huge win for Arizona residents. When you die, the value of your assets (like your home) is "stepped up" to its current market value. If your kids sell the house the next day, they pay zero capital gains tax. If you give them the house while you're still alive, they keep your original purchase price as their basis, which could cost them hundreds of thousands in taxes later.
Actionable Steps for Arizona Residents
Don't just sit there. Laws change, and 2026 is proof that the landscape is always shifting.
- Audit Your Out-of-State Assets: If you own property in one of the 12 states (or D.C.) that still has an estate tax, talk to a pro. You might need to move that property into an LLC or a trust to protect it.
- Review Beneficiary Designations: Since retirement accounts carry an inherent income tax burden, consider if it's smarter to leave those to a charity and leave "clean" assets (like stepped-up stock) to your family.
- File for "Portability": Even if you owe nothing when a spouse dies, file a federal estate tax return. This "locks in" their $15 million exemption for the surviving spouse, just in case the laws change again or your assets explode in value.
- Update Your Trust: If your trust was written before 2011 or even before the 2025 OBBBA, the formulas inside it might be outdated. It could accidentally "fund" a tax-savings bucket that you no longer need, creating extra paperwork for no reason.
Arizona remains a tax haven for estates, but the real work is in the details. Keep your paperwork tight and your eyes on the federal changes.