Inheritance Tax in California: There Is None — What to Know Instead

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H1

Inheritance Tax in California: There Is None

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ANSWER SECTION

There is no inheritance tax in California. The state repealed its inheritance tax in 1982 when voters approved Proposition 6. California also has no state estate tax. When you inherit money or property from someone who lived in California, you pay zero California state tax on the inheritance. However, you may still owe federal estate tax if the total estate 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

The Repeal Story:

Year	Event
Before 1982	California had inheritance and gift taxes
June 8, 1982	Proposition 6 passed by California 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• Repealed both inheritance and gift taxes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 to eliminate "death taxes"
• 67% of California voters supported the measure

Before 1982:

• California taxed inheritances based on heir's relationship to deceased
• Spouses: Exempt or very low rates
• Children: Moderate rates
• Distant relatives and non-relatives: Higher rates up to 24%

Today: California joins 38 states with no inheritance tax and 33 states with no estate tax.

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H2: Federal Estate Tax May Still Apply

When Federal Tax Applies:

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

2025 Federal Estate Tax:

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

How Federal Estate Tax Works:

• Tax is paid by the ESTATE before distribution
• Heirs receive inheritance after estate tax is paid
• Most estates (99.9%) fall below the exemption

Example Calculation:

• Estate value: $15 million
• Exemption: $13.61 million
• Taxable amount: $1.39 million
• Approximate federal estate tax: $556,000

Portability:

• Surviving spouse can inherit deceased spouse's unused exemption
• Must file Form 706 to elect portability
• Effectively doubles exemption for married couples

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H2: Capital Gains on Inherited Assets

The Real Tax Concern:

While inheritance isn't taxed, selling inherited assets often triggers capital gains:

Stepped-Up Basis Rule:

• Inherited assets receive "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 parent's death: $200,000 (stepped-up basis)
• You sell for: $220,000
• Your taxable gain: $20,000 ($220,000 - $200,000)
• NOT $170,000 (total appreciation)

California Capital Gains:

• California taxes capital gains as ordinary income
• No preferential long-term capital gains rate
• State rates: 1% to 13.3%
• Combined with federal: up to 37% total

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H2: California Property Tax and Prop 19

Inherited Real Estate Concerns:

While there's no inheritance tax, California has property tax rules for inherited property:

Proposition 19 (Effective 2021):

• Limits parent-child property tax reassessment exclusions
• Only primary residences qualify
• Must be child's primary residence within 1 year
• $1 million value limit on exclusion
• Investment properties fully reassessed

What This Means:

• Inheriting a parent's home: May keep property tax basis if you live there
• Inheriting rental property: Full reassessment to market value
• Significant property tax increases possible

Prop 13 Continues:

• Base year value system still applies
• Annual increases limited to 2% or inflation
• Inherited property may lose this protection

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H2: States That DO Have Inheritance or Estate Tax

For Comparison:

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

Maryland: Has BOTH estate and inheritance tax

If You Inherit from Another State:

• You may owe inheritance tax to the decedent's state
• Depends on the state where the deceased lived
• Not related to your California residence
• Example: California resident inheriting from Pennsylvania may owe PA inheritance tax

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H2: Related Tax Questions

For more details on California inheritance rules and stepped-up basis, see our guide on inheritance tax California with complete tax treatment.

Learn about California's specific inheritance rules in our guide on California inheritance tax covering federal estate tax implications.

Understand California property tax changes for inherited homes in our guide on Prop 19 loopholes with parent-child transfer rules.

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