California Inheritance Tax: Why There Isn't One (and What Applies Instead)

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H1

California Inheritance Tax: Why There Isn't One

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ANSWER SECTION

California does not have an inheritance tax. The state repealed its inheritance tax in 1982 when voters approved Proposition 6. California also has no state estate tax. When you inherit assets from someone who lived in California, you pay zero California state tax on the inheritance. However, federal estate tax may apply if the total estate value exceeds $13.61 million (2025), and you may owe capital gains tax if you sell inherited assets.

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H2: History of California Inheritance Tax

Timeline:

Year	Event
Before 1982	California had an inheritance tax
June 8, 1982	Proposition 6 passed by voters
1982-present	No California inheritance or estate tax

Proposition 6:

• Approved by California voters in 1982
• Repealed both inheritance and gift taxes
• Part of a nationwide trend of states eliminating death taxes

Before 1982:

• California taxed inheritances based on the heir's relationship to the deceased
• Spouses typically exempt or low rates
• Distant relatives and non-relatives paid higher rates

Today, California is one of 38 states with no inheritance tax and one of 33 states with no estate tax.

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H2: Federal Estate Tax May Still Apply

While California doesn't tax inheritances, the federal government may tax large estates:

2025 Federal Estate Tax:

• Exemption: $13.61 million per person
• Married couples: $27.22 million combined
• Rate: 18% to 40% on amounts above exemption

How It Works:

• Estate valued at $15 million owes federal estate tax on $1.39 million ($15M - $13.61M)
• Tax is paid by the ESTATE, not the heirs
• Heirs receive inheritance after estate tax is paid

Portability:

• Surviving spouse can use deceased spouse's unused exemption
• Must file Form 706 to elect portability

Example:

• Estate value: $20 million
• Exemption: $13.61 million
• Taxable estate: $6.39 million
• Approximate federal estate tax: $2.55 million

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H2: Capital Gains on Inherited Assets

While inheritance isn't taxed, selling inherited assets may trigger capital gains:

Stepped-Up Basis Rule:

• Inherited assets receive a "stepped-up basis" to fair market value at date of death
• You only pay tax on gains AFTER the date of death
• Appreciation during decedent's lifetime is never taxed

Example:

• Parent bought stock: $50,000 (original basis)
• Value at death: $200,000 (stepped-up basis)
• You sell for: $220,000
• Your taxable gain: $20,000 ($220,000 - $200,000)
• NOT $170,000 (the total appreciation)

California Capital Gains:

• California taxes capital gains as ordinary income
• Rates: 1% to 13.3%
• No special long-term capital gains rate

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H2: States That DO Have Inheritance or Estate Taxes

While California has neither, some states do:

States with Estate Tax (2025): Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington

States with Inheritance Tax (2025): Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania

Note: Maryland has BOTH estate and inheritance tax.

If You Inherit from Another State:

• You may owe inheritance tax to that state
• Depends on the decedent's state of residence
• Not related to your California residence

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H2: Related Tax Questions

For more details on inheriting assets in California including capital gains rules, see our guide on inheritance tax in California with the same information.

Learn about California's property tax rules for inherited property in our guide on Prop 19 loopholes with parent-child transfer rules.

Understand how California taxes investment income in our guide on California capital gains tax with 1% to 13.3% rates.

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