California does not have an unrealized gains tax. No state law requires residents to pay tax on investment appreciation, accumulated wealth, or any other asset value until a sale actually happens. The most visible attempt to change that, Assembly Bill 259, died in committee in early 2024, and no replacement has been introduced in the current legislative session.
What AB 259 Would Have Done
Media coverage often called AB 259 an “unrealized gains tax,” but the bill was actually broader than that. It proposed an annual excise tax on a resident’s total worldwide net worth above certain thresholds, whether that wealth grew, shrank, or stayed flat during the year.1LegiScan. CA AB259 2023-2024 Regular Session Introduced A true unrealized gains tax hits only paper profits. A wealth tax hits the whole balance sheet every year. AB 259 was the second kind.
The bill described its target as “the activity of sustaining excessive accumulations of wealth.” Net worth would have been calculated using the same methodology as the federal estate tax: everything a person owns, minus their debts.2Franchise Tax Board. Bill Analysis AB 259 Directly held real property was excluded from the calculation, though taxpayers still had to list it on their returns.1LegiScan. CA AB259 2023-2024 Regular Session Introduced Everything else counted: publicly and privately traded stock, partnership and hedge fund interests, bonds, mutual funds, options, futures, art, collectibles, farm assets, offshore holdings, cash, deposits, and pension funds.
The Thresholds and Rates the Bill Proposed
For tax years beginning on or after January 1, 2026, AB 259 would have imposed a 1% annual tax on worldwide net worth above $50 million for most filers. A 0.5% surtax kicked in above $1 billion, for a combined 1.5% rate on wealth past that mark.1LegiScan. CA AB259 2023-2024 Regular Session Introduced Married taxpayers filing separately had lower thresholds: 1% above $25 million and 1.5% above $500 million.2Franchise Tax Board. Bill Analysis AB 259
A single filer with $1.2 billion in net worth would have owed 1% on the $950 million between $50 million and $1 billion ($9.5 million), plus 1.5% on the $200 million above $1 billion ($3 million). Total annual bill: $12.5 million.
An earlier phase, aimed at tax years 2024 and 2025, would have applied 1.5% to net worth above $1 billion (or $500 million for married filing separately) without the lower tier.1LegiScan. CA AB259 2023-2024 Regular Session Introduced Neither phase took effect.
The Exit Tax for People Leaving California
One of the bill’s most controversial features was that it followed you out of the state. AB 259 created a “wealth-tax resident” category that kept former Californians paying a phased-down version of the tax after they moved. The formula used a fraction: the numerator started with days present in California during the exit year plus years of residence over the prior three tax years, and the denominator was four. The numerator dropped by one each subsequent year until it reached zero.2Franchise Tax Board. Bill Analysis AB 259
In practice, a long-time California resident who left for another state would have continued paying a shrinking share of the wealth tax for roughly three to four years after departure. Legal analysts flagged the provision as a potential due process problem, since the state would be taxing wealth held by someone no longer living there or drawing on state services.
Constitutional Hurdles Any Future Proposal Faces
Even if California passes a wealth or unrealized gains tax in the future, it has to survive constitutional review. The U.S. Constitution requires “direct taxes” to be apportioned among the states by population. A wealth tax almost certainly qualifies as a direct tax, which would block a state from imposing one absent federal authorization or a judicial carve-out.
The Supreme Court had an opportunity to settle the question in Moore v. United States, decided in June 2024, and passed on it. The majority opinion said it did “not address the Government’s argument that a gain need not be realized to constitute income under the Constitution” and specifically noted that “a hypothetical unapportioned tax on an individual’s holdings or property (for example, on one’s wealth or net worth) might be considered a tax on property, not income.”3Supreme Court of the United States. Moore v. United States 22-800 That language reads as a caution to anyone drafting a state wealth tax.
AB 259 tried to preempt these challenges by labeling itself an “excise tax” rather than an income or property tax, and by including a broad severability clause plus a fallback formula if courts struck down the 100% California apportionment. Whether any of that would have survived judicial review is untested.
State law adds a second layer. AB 259 was deliberately paired with ACA 3, a constitutional amendment that would have needed voter approval before the wealth tax could take effect.2Franchise Tax Board. Bill Analysis AB 259 The drafters recognized that without amending the California Constitution, the tax likely couldn’t stand.
Where Things Stand Now
AB 259 was filed with the Chief Clerk on February 1, 2024, ending its run for the 2023–2024 session.4CalMatters Digital Democracy. AB 259 Wealth Tax False Claims Act ACA 3, the companion constitutional amendment, was referred to the Revenue and Taxation Committee in March 2023 and never moved.5CalMatters Digital Democracy. ACA 3 Wealth Tax Appropriation Limits Neither bill has been reintroduced in the 2025–2026 session as of this writing.
The idea hasn’t gone away. A separate ballot initiative has been proposed for the 2026 election cycle that would levy a one-time 5% tax on individual net worth above $1 billion, with revenue directed to healthcare, education, and food assistance programs. Whether it qualifies for the ballot and clears the constitutional questions above is unknown. Until something like it passes and survives challenge, California residents owe no state tax on unrealized gains or accumulated wealth.