Does California Have an Inheritance Tax or Estate Tax?

California does not have an inheritance tax or an estate tax. Under Section 13301 of the state’s Revenue and Taxation Code, neither California nor any county or city may tax a gift, estate, or inheritance.1California Legislative Information. California Revenue and Taxation Code RTC 13301 That does not mean inheriting property in California is tax-free. Federal estate tax can apply to very large estates, inherited retirement accounts come with an income tax bill, and inherited real estate can be reassessed for property tax purposes. Here is what you actually owe.

No State-Level Tax on What You Receive

The state prohibition covers both types of death tax people ask about. An inheritance tax charges the person receiving assets. An estate tax takes from the deceased person’s total estate before anything is distributed. California uses neither.

The California Franchise Tax Board confirms that gifts and inheritances are not included in your California income.2Franchise Tax Board. Gifts and Inheritance It doesn’t matter whether the assets pass through a will, a living trust, or intestate succession. You receive them free of any state-level tax on the transfer itself.

One boundary matters. Once you own an inherited asset, the income it produces is taxable to you in the normal way. Rent from an inherited rental property, dividends from inherited stock, and interest from an inherited bond account all show up on your tax return going forward. The inheritance itself is untaxed; the earnings that follow are not.

Federal Estate Tax Still Applies to Large Estates

The federal government taxes estates above a high threshold. For deaths in 2026, the basic exclusion amount is $15,000,000 per person, set by the One, Big, Beautiful Bill signed on July 4, 2025.3Internal Revenue Service. What’s New – Estate and Gift Tax Only the amount above the exclusion is taxed. Rates start at 18 percent and climb to a top rate of 40 percent on amounts more than $1,000,000 above the exemption.4Office of the Law Revision Counsel. 26 U.S. Code 2001 – Imposition and Rate of Tax

Two things about this tax often reassure heirs. First, the executor pays it from the estate’s own funds before making any distributions, so a beneficiary never receives a personal bill from the IRS. Second, estates below $15,000,000 generally don’t have to file a federal estate tax return at all.5Internal Revenue Service. Estate Tax The vast majority of California families owe nothing federally.

Married couples can effectively double the exemption to $30,000,000 by claiming the deceased spouse’s unused portion — the Deceased Spousal Unused Exclusion — on a timely-filed federal estate tax return (Form 706).6Internal Revenue Service. Instructions for Form 706 For a very large California estate this is worth doing even when no tax is currently owed, because skipping the filing means the first spouse’s exemption disappears.

Property Tax Reassessment Under Proposition 19

This is where California heirs get caught off guard. Inheriting a home doesn’t trigger an inheritance tax, but it can trigger a property tax reassessment that raises the annual bill dramatically. Proposition 19 took effect in February 2021 and narrowed the parent-to-child exclusion that used to be far more generous.

Keeping a Parent’s Assessed Value

A child inheriting a parent’s home can keep the parent’s lower Proposition 13 assessed value only if all three of these are true:

Say a parent’s home has a taxable value of $400,000 and a market value of $1,800,000. The excluded amount is $400,000 plus $1,044,586, or $1,444,586. Because market value exceeds that by $355,414, the child’s new taxable value becomes $755,414. That’s a real increase, but still far below what a full reassessment would produce.

When the Exclusion Doesn’t Apply

If the child uses the inherited home as a rental, a vacation property, or a second residence, the county reassesses the entire property to current market value. Many California homes have been held for decades at artificially low Proposition 13 values, so a full reassessment can multiply the annual property tax bill several times over.

Grandchildren can qualify for the parent-child exclusion, but only if their parent (the original owner’s child) is already deceased when the transfer occurs.8California State Board of Equalization. Proposition 19 Intergenerational Transfer Exclusion Guidance Investment properties and other non-primary residences no longer receive any parent-child property tax exclusion.

Filing Deadline for the Exclusion

To get the exclusion applied retroactive to the date of transfer, file a claim with the county assessor within three years of the transfer or before the property is sold to a third party, whichever happens first.9California State Board of Equalization. Exclusions From Reappraisal Frequently Asked Questions – Propositions 58/193 Late claims are still accepted if you still own the property, but the benefit applies only going forward from the year you file. The retroactive years are lost.

Income Tax on Inherited Retirement Accounts

Traditional IRAs, 401(k) plans, and similar tax-deferred accounts were funded with pre-tax dollars. The tax was deferred, not eliminated. When you inherit one, you pay income tax on the distributions at your own ordinary tax rate.10Internal Revenue Service. Retirement Topics – Beneficiary

How fast you must withdraw depends on who you are to the account holder:

  • A surviving spouse can roll the account into their own IRA and follow standard distribution rules, which defers tax the longest.
  • An eligible designated beneficiary — a minor child of the account holder, someone disabled or chronically ill, or someone no more than ten years younger than the deceased — can stretch distributions across their own life expectancy.
  • Every other individual beneficiary must empty the account by the end of the tenth year after the account holder’s death. This is the SECURE Act’s ten-year rule, and it applies to account holders who died in 2020 or later.10Internal Revenue Service. Retirement Topics – Beneficiary

The ten-year rule sounds flexible, but taking one large distribution in year ten can push you into a much higher tax bracket. Spreading withdrawals across the full decade generally softens the tax bite. Inherited Roth IRAs follow the same ten-year rule for non-spouse beneficiaries, but qualified Roth distributions are usually tax-free because the original contributions were made with after-tax dollars.

Step-Up in Basis: The Big Break for Heirs

When you inherit stocks, real estate, or a business interest, the tax basis resets to the fair market value on the date the owner died.11Internal Revenue Service. Gifts and Inheritances This step-up in basis can wipe out decades of built-up capital gains tax.

Say a parent bought a home for $200,000 and it’s worth $1,200,000 at death. Your basis becomes $1,200,000. Sell for $1,250,000 and you owe capital gains tax only on the $50,000 difference. The $1,000,000 of appreciation during your parent’s lifetime is never taxed.

The Community Property Advantage in California

California is a community property state, and that gives surviving spouses an extra break. When one spouse dies, both halves of any community property receive a step-up in basis, not just the deceased spouse’s half.12Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent In a common-law state, only the deceased spouse’s 50 percent share gets the new basis. If a California couple bought a home for $300,000 and it’s worth $2,000,000 when the first spouse dies, the entire property takes a $2,000,000 basis, potentially saving the survivor hundreds of thousands in capital gains tax on a later sale.

Retirement accounts are excluded from step-up. Inherited real estate and stocks come with a clean tax slate; inherited traditional IRAs carry a built-in tax bill.

Probate Fees Are Not a Tax, But They’re the Real Cost

California doesn’t tax the inheritance, but the probate process has its own price tag set by statute. The executor (the “personal representative”) and the attorney are each entitled to the full statutory fee, calculated on the gross value of the estate before subtracting debts or mortgages.13California Legislative Information. California Probate Code PROB 10810

The schedule is 4 percent on the first $100,000, 3 percent on the next $100,000, 2 percent on the next $800,000, and 1 percent on the next $9,000,000. On a $1,000,000 estate, that’s $23,000 to the attorney and $23,000 to the executor — $46,000 combined. On a $2,000,000 estate the combined total is $66,000. A $1,500,000 home with an $800,000 mortgage still counts as a $1,500,000 asset for fee purposes.

Assets in a revocable living trust, joint tenancy accounts, payable-on-death accounts, and beneficiary-designated retirement accounts all pass outside probate and avoid these fees entirely. For small estates, California allows a simplified transfer using a small estate affidavit when total probate assets do not exceed $184,500.14California Courts. Small Estate Affidavit to Transfer Personal Property

Inheriting From Someone in a State That Does Have an Inheritance Tax

Living in California doesn’t protect you if the person leaving you assets lived elsewhere. Five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If the deceased lived in one of them, or owned real property there, you may owe that state’s tax no matter where you live.

Each state sets its own rates and exemptions, generally based on how closely related you were to the deceased. Spouses and children often pay little or nothing; distant relatives and unrelated beneficiaries can pay 15 to 18 percent. The bill ultimately falls on you as the beneficiary, even though the estate’s representative in that state handles the filing.

If the federal estate tax also applies, there is a partial offset: the estate can deduct state death taxes actually paid on its federal return.15Office of the Law Revision Counsel. 26 U.S. Code 2058 – State Death Taxes That reduces the taxable estate, not the state bill itself. If you learn you’re inheriting from someone in one of those five states, talk to a tax professional there early so the timing and amount don’t surprise you.