Michigan Death Tax: What Heirs Actually Owe in 2026

Someone in your family has died, and now people are using the phrase “death tax.” Here is the short version, before anything else: Michigan does not have one. There is no Michigan inheritance tax and no Michigan estate tax on anyone who died after September 30, 1993 — the state repealed the first and reduced the second to zero. What can still cost you is federal, or it is income tax on what you inherited rather than on the inheritance itself. This guide walks through the difference, and through the parts that catch Grand Rapids families out.

The short answer on the Michigan death tax

“Death tax” is not a legal term. It is shorthand for two different taxes that work in opposite directions, and keeping them apart makes the rest of this straightforward:

• An inheritance tax is charged to the person who receives. The rate usually depends on how closely related you were to the person who died.
• An estate tax is charged to the estate itself, before anything is distributed to anyone.

Michigan has neither, for practically everyone reading this:

• Michigan's inheritance tax applies only where the person died on or before September 30, 1993.
• Michigan's estate tax is still printed in the statute books, but it has computed to $0 since 2005.

So if the person died in the last twenty years, Michigan's share of your inheritance is nothing. That is the entire answer to the Michigan death tax question. Everything below is about the taxes people confuse with it — the federal estate tax, income tax on what an inherited asset earns, and a Michigan property tax rule that quietly catches families who inherit a house.

Michigan's inheritance tax and the one case where it still applies

Michigan repealed its inheritance tax with Public Act 54 of 1993. The repeal was not written as a deletion, which is why you can still find the sections in the Michigan Compiled Laws and conclude the tax is alive. What the Legislature added instead was an applicability switch. MCL 205.223 says the inheritance tax sections “apply only to the estate of a resident or nonresident decedent dying before October 1, 1993.”

Most articles on this topic stop at “Michigan has no inheritance tax.” The Michigan Department of Treasury is more careful than that, and the distinction is worth understanding. Its inheritance tax FAQ opens by asking whether there is still an inheritance tax, and answers: “Yes, the Inheritance Tax is still in effect, but only for those individuals who inherited from a person who died on or before September 30, 1993.”

Treasury still staffs an Inheritance Tax Section in Lansing for exactly this. The situation that brings it back to life is what Treasury calls an After Discovered Asset — an estate was closed years ago and an asset nobody knew about surfaces. A forgotten bank account, an unrecorded interest in land, an old life insurance policy. If the person died on or before September 30, 1993, that asset is still inside the old inheritance tax regime: the probate estate gets reopened, and Treasury asks for a letter within 90 days of the discovery setting out the asset and its date-of-death value.

This is rare, and it is the only circumstance in which a Michigan inheritance tax bill is a real thing in 2026. If you are administering an estate for someone who died in 1993 or earlier, that is a genuine reason to get professional help rather than guess.

Michigan's estate tax is still on the books but collects nothing

Michigan does have an estate tax statute, and people find it and worry. It is the Michigan Estate Tax Act, and MCL 205.232 sets the tax at “the maximum allowable federal credit under the internal revenue code for estate, inheritance, legacy, and succession taxes paid to the states.”

Read that closely, because Michigan never set its own rate. It set its tax equal to a credit the federal government used to give. That design is called a pick-up tax, or a sponge tax: the state absorbed part of what the estate was already paying the IRS, so the estate's total bill did not change and Michigan collected a share of it.

Then Congress took the credit away. The 2001 federal tax act phased the state death tax credit down and terminated it for anyone dying after December 31, 2004, replacing it with a deduction under Internal Revenue Code section 2058. The credit provision itself, section 2011, was formally struck from the code in 2014.

So Michigan's estate tax is equal to a number that has been zero for two decades. The statute is still valid and still produces a tax of nothing. Nobody has bothered to repeal it because there is nothing left to repeal.

The federal estate tax and the $15 million threshold

The federal estate tax is real, and it is the one that people are usually half-remembering when they worry about a death tax. It is also one that almost nobody pays.

For someone who dies in tax year 2026, a federal estate tax return is required only if the gross estate, increased by lifetime taxable gifts, exceeds $15,000,000. For 2025 deaths the figure was $13,990,000. The current thresholds are published on the IRS estate tax page.

That is a per-person amount, and it is portable between spouses. Since 2011, the estate of the spouse who dies first can elect to pass any unused exclusion to the survivor, which for a married couple who make the election effectively doubles the shelter. The election is made on a federal estate tax return — which is why that return sometimes gets filed by estates far too small to owe anything. Filing is how you claim portability, and letting it lapse is a decision you cannot easily undo later.

The practical translation for West Michigan is that the federal estate tax reaches a very small number of families. If someone tells you a $600,000 estate owes a death tax, they are working from figures that are decades out of date.

Related, and far more common: the annual gift tax exclusion is $19,000 per recipient for tax year 2026, unchanged from 2025. You can give any number of people $19,000 each in a year without filing anything at all. Go above it and a gift tax return is required, but tax is still very unlikely — the excess simply reduces that $15,000,000 lifetime figure. And it is the donor who is responsible for gift tax, never the person receiving.

Is the money you inherit taxable income?

No. Internal Revenue Code section 102(a) is a single sentence: “Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.” An inheritance is not income. It does not go on your Form 1040, it does not go on your MI-1040, and it does not push you into a higher bracket.

The very next subsection is where people get caught. Section 102(b) says that while the property itself is excluded, the income that property produces is not. Inherit $200,000 in a brokerage account and the $200,000 arrives tax-free. The dividends it pays you afterwards are ordinary taxable income, reported on a 1099, exactly like any other investment you own.

The line is between the asset and what the asset earns. It reads as obvious written down. It is also the single thing I most often end up explaining in the year after a client inherits something.

The step-up in basis and the assets that do not get one

This is the most valuable rule in the whole subject, and it works in your favour. Under Internal Revenue Code section 1014(a)(1), the basis of property you inherit is generally its fair market value on the date of death — not what the person originally paid for it.

Say your mother bought her house on the northeast side of Grand Rapids in 1989 for $58,000, and it is worth $310,000 when she dies. Had she sold it the day before, she would have faced gain on $252,000 of appreciation. You inherit it instead, your basis becomes $310,000, and if you sell it for $315,000 your taxable gain is $5,000. A lifetime of appreciation is simply never taxed. This is also why getting a defensible date-of-death valuation matters: it is the number every future gain is measured from, and it is far easier to support now than five years from now.

Now the exception that rarely makes it into articles on this topic. Section 1014(c) says the step-up “shall not apply to property which constitutes a right to receive an item of income in respect of a decedent.” Income in respect of a decedent — IRD — is money the person had earned the right to but had never been taxed on.

The big one is retirement accounts. A traditional IRA, a 401(k), a 403(b): every dollar inside is pre-tax, and none of it gets a step-up. When you draw money out of an inherited traditional IRA you pay ordinary income tax on it, at your rates, exactly as the original owner would have.

That is where the real tax bill on a middle-class inheritance usually sits. Picture two siblings inheriting equally — one takes the house, one takes the IRA. On paper it is a clean 50/50 split. After tax it is not, because the house carried a step-up and the IRA carries a deferred income tax bill. If you are the sibling with the retirement account, how and when you draw it down is a real decision with real money attached. Inherited accounts also carry required distribution timelines that depend on your relationship to the owner and when they died, and those rules have been rewritten more than once in recent years — so check the current version rather than one you remember.

Inheriting a house in Michigan: the property tax trap

This one is genuinely Michigan-specific, and it surprises people because it has nothing to do with inheritance tax at all.

Michigan caps how fast a property's taxable value can rise each year while the same person owns it. When ownership transfers, the cap comes off — assessors call it uncapping — and taxable value resets to half of the property's market value. On a house held by the same family for thirty years, that reset can be a substantial jump in the annual tax bill.

Inheriting a home is a transfer of ownership. But MCL 211.27a carves out an exemption, and it is a generous one with a condition attached that catches people.

Since December 31, 2014, residential real property does not uncap when it passes to the transferor's or their spouse's mother, father, brother, sister, son, daughter, adopted son, adopted daughter, grandson, or granddaughter — provided “the residential real property is not used for any commercial purpose following the conveyance.” The same test applies whether the house reaches you through a will, through intestate succession, or out of a trust. A surviving spouse is covered outright.

Two things are worth noticing.

That list is exhaustive, and it is narrower than “family.” Nieces, nephews, cousins, great-grandchildren, and stepchildren who were never legally adopted are not on it. If the house passes to one of them, it uncaps.

The commercial-purpose condition is live, not a formality. Inherit your parents' house, qualify for the exemption, then decide to rent it out, and you have used the property for a commercial purpose. The assessor or Treasury can ask you to prove you still meet the requirements within 30 days, and the statute carries a $200 fine for failing to respond. Deciding what to do with an inherited house — live in it, sell it, rent it — is exactly the sort of decision worth running the numbers on before you act rather than after.

The tax returns someone still has to file

No death tax does not mean no filing. Someone — usually the personal representative, and often a family member who did not expect the job — still has to deal with the following.

The final individual returns. A federal Form 1040 and a Michigan MI-1040 for the year of death, reporting income up to the date of death. The IRS's own instruction is to prepare it “the same way you would if the person were alive,” and it is due on the normal date for that tax year.

A refund claim, if a refund is owed. If you are not a surviving spouse filing jointly, the IRS wants Form 1310 and Michigan wants Form MI-1310 filed with the return. Michigan also asks for a death certificate, or for the Letters of Authority if the probate court appointed you personal representative. A surviving spouse filing a joint return files neither form.

An estate income tax return, sometimes. This is separate from the final return and frequently missed. Once someone dies, their estate becomes its own taxpayer for anything it earns before assets are distributed — interest, dividends, rent, gain on a sale. A federal Form 1041 is required if the estate has gross income of $600 or more for the year. That threshold is low, and an estate that takes a year to settle while holding a brokerage account will clear it without trying.

Prior-year returns, if any were missed. If the person had unfiled returns from earlier years, those may need to be brought up to date as well.

When the person who died lived in another state

Michigan having no inheritance tax protects you from Michigan. It does not protect you from anywhere else, and this is the scenario I would most want a Grand Rapids reader to catch.

An inheritance tax follows the estate of the person who died, not the address of the person inheriting. Living in Michigan does not exempt you from another state's tax if the person who died was a resident there.

On the Tax Foundation's October 2025 count, five states still levy an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Maryland is the only state that charges both an estate tax and an inheritance tax.

Pennsylvania is the one Michigan families run into most, and its rates are not trivial. The Pennsylvania Department of Revenue charges 0% to a surviving spouse, 4.5% to direct descendants and lineal heirs, 12% to siblings, and 15% to other heirs — and unlike the federal estate tax there is no large exemption sitting underneath it. A Grand Rapids resident who inherits $150,000 from a parent in Pittsburgh can owe Pennsylvania about $6,750 while owing Michigan nothing at all.

If the person who died lived outside Michigan, check that state's rules before assuming the answer is zero — and check them for the current year, because states move on and off this list.

When a death tax question is worth a CPA's time

Let me be straight about the division of labour here, because it saves people money and a certain amount of frustration.

Wills, trusts, powers of attorney and probate administration are legal work. They are drafted and administered by an estate planning attorney, not by a CPA. If what you need is a document, or someone to steer an estate through probate court, a lawyer is the right first call and I will say so.

What sits on the accounting side of that line is the tax — and those questions come up more often than people expect, usually with a number attached:

• The final Form 1040 and MI-1040 for the year someone died, and the refund claim that goes with them.
• Whether the estate needs to file a Form 1041, and for which year.
• Establishing and documenting date-of-death basis in inherited property — before a sale, while the valuation is still easy to support.
• An inherited retirement account: what the distributions do to your own taxable income, and how to sequence them across tax years.
• Whether inheriting something changes your own withholding, estimated payments, or bracket for the year.
• An inherited house: uncapping, the principal residence exemption, and what renting it out would actually cost you.

Those are planning questions, and they are what individual tax planning is for — deciding in advance rather than finding out the following April. If you have inherited something in the past year and you are not sure whether it changes your return, that is a sensible thing to raise in a free consultation. And if it turns out an attorney is who you actually need, that is a short conversation and still a useful one.

FAQ

Does Michigan have an inheritance tax?

Not for practically anyone. Michigan repealed its inheritance tax in 1993. Under MCL 205.223, the inheritance tax sections apply only to the estate of someone dying before October 1, 1993. The Michigan Department of Treasury puts it this way: the Inheritance Tax is still in effect, but only for those individuals who inherited from a person who died on or before September 30, 1993.

How much is the inheritance tax in Michigan?

There is no rate to quote, because for anyone who died after September 30, 1993 the Michigan inheritance tax does not apply at all. Michigan takes nothing from an inheritance. Any tax you end up paying is federal, or it is income tax on what the inherited asset earns afterward, or on distributions from an inherited retirement account.

Does Michigan have an estate tax?

Michigan has an estate tax statute, but it collects nothing. MCL 205.232 sets Michigan's estate tax equal to the maximum allowable federal credit for state death taxes. Congress terminated that credit for deaths after December 31, 2004, so the Michigan calculation has produced $0 ever since. The law is still on the books; the tax is zero.

Do I have to pay taxes on money I inherit in Michigan?

Not on the inheritance itself. Internal Revenue Code section 102(a) excludes property acquired by gift, bequest, devise or inheritance from gross income, so it is not reported as income federally or on your MI-1040. You do pay tax on what the property earns afterward — dividends, interest, rent — and on withdrawals from an inherited traditional IRA or 401(k), which get no step-up in basis and are taxed as ordinary income.

Do I still have to file a tax return for someone who died?

Yes. A final federal Form 1040 and a Michigan MI-1040 are due for the year of death, covering income up to the date of death. If a refund is owed and you are not a surviving spouse filing jointly, attach Form 1310 federally and Form MI-1310 for Michigan. Separately, the estate itself files a federal Form 1041 if it has gross income of $600 or more while it is being settled.