One of the most common estate planning concerns people raise is taxes, particularly what are commonly called “death taxes.”
Some phrase, huh? It gets a lot of attention, but it tends to be somewhat overblown. Understanding how estate taxes actually work, how they differ from income taxes, and the common expenses associated with a death can prevent unnecessary worry as you start planning for your family’s future.
Is There a Texas Estate Tax?
Let’s start with an important point for Texans: Texas does not have an estate tax or inheritance tax. In other words, Texas property is NOT subject to a state-level tax simply because you passed away.
Of course, this doesn’t mean you won’t have to pay any estate taxes…. There are still federal estate taxes, and some Texans also own property in states that do have an estate and/or inheritance tax.
This is where much of the confusion comes from, because you may still have to pay those taxes. When and why?
How the Federal Estate Tax Works
The federal estate tax applies only to estates above a certain value. For 2026, the federal estate tax exemption is more than $15 million per person. So if you’re facing this tax… congratulations! In all seriousness, most people do not have a net worth anywhere near this amount.
To add further confusion, only the portion of an estate that exceeds the exemption amount is subject to the tax. This is paid by the estate itself, rather than by individual beneficiaries. For many families, this means estate taxes are not an immediate concern.
However, they can become relevant for higher-net-worth individuals, business owners, or those with significant real estate or investment holdings.
Estate Taxes vs. Income Taxes
Another common misunderstanding is assuming that all inherited assets are taxed as ordinary income. Although this is true of certain assets, it is not a universal rule. However– and this is important– you must still complete federal tax returns for a (recently) deceased person and their estate; these are separate from “death taxes.”
When you inherit assets such as real estate, you generally do not owe income tax simply because you received them. Instead, income taxes may apply later if you sell the asset and realize a gain.
This is where the concept of “basis” becomes important.
What Is a Step-Up in Basis?
“Basis” refers to an asset’s original value for tax purposes. When someone passes away, many inherited assets receive a step-up in basis, meaning the asset’s value is adjusted to its fair market value as of the date of death.
For example, if someone purchased stock years ago for $50,000 and it is worth $200,000 at the time of death, the beneficiary’s basis is typically stepped up to $200,000. If the beneficiary later sells the stock for that amount, little or no capital gains tax may be owed.
Why Community Property Matters Here
Texas is a community property state, which creates an additional planning advantage. In many cases, when one spouse dies, both halves of community property receive a full step-up in basis… meaning that you aren’t limited to the deceased spouse’s share.
This can significantly reduce capital gains taxes for the surviving spouse if the assets are sold later, making thoughtful community property planning especially important for married couples.
Why All of This Matters for Estate Planning
While it’s true that most Texans will not owe death taxes in the strictest sense, the way assets are titled, transferred, and inherited can still have major tax consequences. Understanding estate taxes, income taxes, and basis rules allows families to preserve more of what they’ve worked hard to build.
We help clients navigate these issues as part of a comprehensive planning strategy. Our goal is to make sure there are fewer surprises, fewer tax headaches, and clearer outcomes for your loved ones.
If you have questions about estate taxes, step-up in basis, or how Texas community property rules apply to your situation, the best time to get clarity is always now. Ready to set up a free consultation? Get in touch.