Inheritance Tax in California: Does It Exist? (2025 Guide)

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H1

Inheritance Tax in California: Does It Exist?

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ANSWER SECTION

California does not have an inheritance tax. California also does not have an 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). Additionally, while you won't pay tax when you inherit, you may owe capital gains tax if you later sell inherited assets.

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H2: California's History with Inheritance Tax

California did have an inheritance tax until 1982 when voters approved Proposition 6, which repealed the state's inheritance and gift taxes.

Historical timeline:

• Before 1982: California taxed inheritances at rates based on the heir's relationship to the deceased
• June 8, 1982: Proposition 6 passed by voters
• Current day: No California inheritance or estate tax exists

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 2025 Federal estate tax rate: 18% to 40% on amounts above the exemption

How it works:

• Estates valued below $13.61 million pay $0 federal estate tax
• Only the amount ABOVE $13.61 million is taxed
• Married couples can combine exemptions for a total of $27.22 million

Example: An estate worth $15 million would owe federal estate tax on $1.39 million ($15M - $13.61M), not on the full $15 million.

Important: The federal estate tax is paid by the ESTATE before assets are distributed to heirs. Heirs do not pay this tax directly.

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H2: Capital Gains Tax on Inherited Assets

While you don't pay tax when you inherit, you may owe tax when you sell inherited assets:

Stepped-up basis rule:

• Inherited assets receive a "stepped-up basis" to their fair market value on the date of death
• This means you only pay capital gains on appreciation AFTER the date of death
• Appreciation during the deceased's lifetime is never taxed

Example:

• Parent bought stock for $50,000 (original basis)
• Stock worth $200,000 at parent's death (stepped-up basis)
• You inherit and later sell for $220,000
• Your taxable gain: $20,000 ($220,000 - $200,000), NOT $170,000

California capital gains: California taxes capital gains as ordinary income (1% to 13.3% rates), with no special long-term capital gains rate.

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H2: States That DO Have Inheritance Taxes

While California has no inheritance tax, six states do:

State	Inheritance Tax	Tax Rates
Iowa	Yes	0-15% (phasing out by 2025)
Kentucky	Yes	4-16%
Maryland	Yes	0-10%
Nebraska	Yes	1-18%
New Jersey	Yes	0-16%
Pennsylvania	Yes	4.5-15%

Key difference: Inheritance tax is paid by the HEIR, not the estate. Rates typically depend on your relationship to the deceased (spouses usually exempt, distant relatives pay more).

If you inherit from someone who lived in one of these states, you may owe inheritance tax to that state even if you live in California.

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H2: Related Tax Questions

For a deeper explanation of why California doesn't have an inheritance tax and its history, see our guide on California inheritance tax covering the 1982 repeal.

Learn how inherited property is treated under California's property tax laws in our guide on Prop 19 loopholes with parent-child transfer rules.

Understand California's treatment of investment income in our guide on California capital gains tax with 2025 rates from 1% to 13.3%.

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