You've probably heard the horror stories about the "death tax." Someone works their entire life to build a farm in Hamilton County or a small business in Fort Wayne, only for the government to swoop in and take half the value the moment they pass away. It sounds brutal. But if you are living in the Hoosier State right now, the reality is actually a lot more relaxed than you might think.
Honestly, Indiana is one of the friendliest places in the country when it comes to dying. That sounds like a weird sentence, but from a tax perspective, it’s true.
The biggest thing people get wrong about the indiana state estate tax is thinking it still exists. It doesn’t. Indiana used to have a pretty aggressive inheritance tax, but that’s ancient history in the world of tax law. If you’re trying to figure out how much you owe the state of Indiana because your Great Aunt Mildred left you her vintage Corvette and a lake house, the answer is likely zero.
The Death of the Indiana State Estate Tax
Back in 2013, former Governor Mike Pence signed a law that retroactively killed the Indiana inheritance tax. Before that, the state had this tiered system where how much you paid depended on how closely you were related to the person who died. Spouses were fine, but kids, siblings, and friends all got hit with different rates.
It was a mess.
The state originally planned to phase it out over a decade, but they got impatient and just pulled the plug early. So, for anyone who has passed away after December 31, 2012, there is no indiana state estate tax or inheritance tax. You don't even have to file a state return for it.
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This makes Indiana a "decoupled" state. Basically, we’ve completely broken up with the federal government’s way of doing things. While some states like Illinois or Maryland still want their cut, Indiana decided it would rather be a tax haven for retirees and business owners.
Wait, So I Pay Nothing?
Not exactly. You’ve still got the federal government to worry about.
Just because the state of Indiana isn't reaching into your pocket doesn't mean the IRS isn't. The federal estate tax is still very much a thing. In 2026, things got particularly interesting because of the "One Big Beautiful Bill Act" (OBBBA).
For a long time, we were all staring down a "sunset" provision from the old 2017 tax laws. We thought the exemption—the amount you can give away for free—was going to drop from around $13 million down to $7 million. That would have caught a lot of Indiana farmers and business owners off guard.
But the new laws that kicked in this January changed the game. Now, the federal exemption is sitting at a massive $15 million per person. If you’re married, you can effectively protect $30 million.
Most people I talk to hear that number and think, "Well, I'm definitely not worth $30 million, so I'm safe." Maybe. But "value" is a tricky thing when you own land or a growing company.
Why the Indiana State Estate Tax Still Matters (Sorta)
Even though the tax itself is gone, the concept of the indiana state estate tax lingers in the way you have to plan your life. If you move here from a state that does have a death tax, like Kentucky or Ohio (which also repealed theirs, but people still worry), you might have old trusts set up to avoid taxes that don't exist here.
Sometimes, those old plans actually cause more trouble than they solve.
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For instance, some people use "AB Trusts" or "Bypass Trusts." These were great back when the state tax was high. They split assets into two buckets when the first spouse dies. But in Indiana, where there is no state tax, these trusts can sometimes strip you of a "step-up in basis."
The Magic of the Step-Up
If you bought a house in Carmel for $100,000 thirty years ago and it’s worth $800,000 today, you have $700,000 in taxable gains. If you sell it while you're alive, you pay capital gains tax.
But if you die and leave it to your kids, their "basis" resets to the value on the day you died ($800,000). If they sell it the next week, they pay zero tax.
Because Indiana has no state estate tax, your main goal isn't avoiding a "death tax" anymore. It’s making sure you don't accidentally mess up that step-up in basis. Over-complicating your estate plan with "tax-saving" trusts that were designed for 1995 can actually cost your heirs way more in capital gains than they would have ever paid in estate taxes.
Common Misconceptions Hoosiers Have
I see the same three or four mistakes over and over. People get their legal advice from Google or from a cousin in New Jersey, and it just doesn't apply to Indiana.
- The "Small Estate" Myth: People think if they have less than $100,000, they don't need to do anything. While Indiana has a "Small Estate Affidavit" process for estates under $100,000 that lets you skip full probate, it doesn't mean you're invisible to the IRS or that creditors can't come knocking.
- The Gift Tax Confusion: People ask me, "Can I give my kid $20,000 without the state of Indiana taxing it?" Yes. Indiana doesn't have a gift tax. The federal government has an annual exclusion (it’s $19,000 in 2026), but even if you go over that, you usually don't pay tax; you just use up a tiny bit of that $15 million lifetime limit.
- The Property Tax Trap: While we don't have a indiana state estate tax, we definitely have property taxes. In 2026, Indiana implemented some new homestead credits (Senate Enrolled Act 1), but those credits are tied to the person living there. If you inherit a house and don't move in, those taxes can spike.
Real-Life Example: The Miller Farm
Let’s look at a "typical" Indiana scenario. The Miller family owns 500 acres in Boone County. They bought it decades ago for almost nothing. Today, with developers moving in, that land is worth $25,000 an acre.
- Land Value: $12.5 million.
- Equipment & Cash: $1.5 million.
- Total Estate: $14 million.
If Mr. Miller dies in 2026, does he owe indiana state estate tax? No.
Does he owe federal estate tax? Also no, because he’s under the $15 million threshold.
However, if the land value keeps climbing and he doesn't have a plan, his kids might be forced to sell part of the farm just to pay the federal tax if the exemption ever drops in the future.
The lesson here is that in Indiana, your "estate tax" plan is really a "federal tax" plan and a "probate avoidance" plan.
What You Should Actually Do Now
Since you aren't writing a check to the Indiana Department of Revenue for an estate tax, what should you be doing?
First, look at your "Transfer on Death" (TOD) and "Payable on Death" (POD) designations. Indiana law is very friendly to these. You can put a TOD on your car title, your house deed, and your bank accounts. This lets the assets fly right over the probate court and land in your beneficiary's lap.
It's fast, and it's free.
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Second, check your will. If it was written before 2013, it’s probably full of language about "Indiana Inheritance Tax Categories" (Class A, Class B, etc.). That language is useless now. It’s like having a manual for a VCR; it won't help you with your Netflix account.
Third, if you’re a high-net-worth individual—meaning you're pushing that $15 million mark—talk to an Indiana-specific attorney. Don't use a national firm that uses a "one-size-fits-all" template. You need someone who knows how to handle the specificities of Indiana’s probate code (Title 29) and the new 2026 property tax laws.
Actionable Next Steps
- Audit your titles: Go to the Indiana Bureau of Motor Vehicles or your county recorder's office and see if you can add "Transfer on Death" to your major assets.
- Review your "Step-Up" strategy: Talk to a CPA about whether your current trusts are helping or hurting your capital gains exposure.
- Update your Power of Attorney: Indiana updated its POA statutes fairly recently. Make sure yours is "durable" so it stays valid if you become incapacitated.
- Check the 2026 Income Tax Rates: Remember, Indiana’s state income tax dropped to 2.95% this year. If you’re pulling money out of an inherited IRA, your state tax bill will be slightly lower than last year.
The indiana state estate tax might be dead and buried, but your financial legacy doesn't have to be. By focusing on probate avoidance and federal exemptions, you can make sure your family keeps what you spent a lifetime building.
References:
- Indiana Code Title 6, Article 4.1 (Repealed)
- Senate Enrolled Act 1 (2026 Property Tax Relief)
- IRS Publication 559: Survivors, Executors, and Administrators
- Indiana Department of Revenue: Inheritance Tax Information (Retired Forms)
- Internal Revenue Code: OBBBA 2026 Exemption Updates