If you recently inherited assets in California, the answer to most tax questions is simpler than you might expect. California does not have a state inheritance tax, and there is no federal inheritance tax either. That said, depending on the size of the estate and the type of assets involved, other tax considerations can still apply.
California Has No Inheritance Tax
California eliminated its state estate tax in 2005, and the state has never imposed a separate inheritance tax on beneficiaries. This means that if you inherit money or property from someone who lived in California, you do not owe any tax to the state simply because you received it. You do not need to file a California inheritance tax return because one does not exist.
One exception worth knowing: if you inherit assets from someone who lived in another state, that state’s laws may apply. A handful of states still impose inheritance taxes on beneficiaries, and the rules vary depending on your relationship to the person who passed away and where the property is located. If you are inheriting across state lines, it is worth confirming which state’s rules govern each asset.
What About the Federal Estate Tax?
While there is no federal inheritance tax, there is a federal estate tax that applies to large estates before assets are distributed to heirs. The estate itself pays this tax, not the beneficiaries. For most families, the federal estate tax is not a concern because the exemption threshold is high.
For 2026, the federal estate and gift tax exemption is $15 million per individual. Estates below that amount owe no federal estate tax. Married couples can combine their exemptions, shielding up to $30 million from federal tax through a process called portability.
How the One Big Beautiful Bill Act Changed the Picture
Before July 2025, estate planners and families faced real uncertainty. The elevated exemption amounts set by the 2017 Tax Cuts and Jobs Act were scheduled to sunset at the end of 2025, which would have cut the exemption roughly in half, to approximately $7 million per person. That potential drop had many California families reconsidering their plans.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law, permanently resolving that uncertainty. Starting January 1, 2026, the federal estate and gift tax exemption increases to $15 million per individual and $30 million for married couples. The exemption is also indexed for inflation beginning in 2027, meaning it will continue to adjust over time. There is no sunset provision. For the overwhelming majority of California families, this means no federal estate tax exposure at all, now or in the foreseeable future.
The Generation-Skipping Transfer (GST) tax exemption was also raised to match the new $15 million threshold, creating more flexibility for families planning to transfer wealth across multiple generations.
Taxes That Can Still Affect an Inheritance in California
Even though California has no inheritance tax and most estates fall well under the federal threshold, other taxes can still affect what you receive or what you owe after inheriting assets. The most common ones to be aware of include:
- Capital gains tax: When you sell an inherited asset such as a home or investment account, you may owe capital gains tax on any appreciation since the date of death. Inherited assets generally receive a stepped-up basis, meaning your taxable gain is calculated from the asset’s value at the time of death, not the original purchase price. This can significantly reduce your tax exposure when you sell.
- Property tax reassessment under Proposition 19: California’s Proposition 19 limits the parent-child exclusion that once shielded inherited real estate from reassessment. Under current rules, only a primary residence qualifies for the exclusion, and only if the heir uses it as their own primary residence. Inherited vacation homes, rental properties, and other real estate are generally subject to reassessment at current market value.
- Income tax on inherited retirement accounts: If you inherit an IRA or 401(k), distributions are generally treated as ordinary income in the year you take them. Most non-spouse beneficiaries must now deplete inherited retirement accounts within 10 years under the SECURE Act rules (the federal law that changed how inherited IRAs and 401(k)s must be withdrawn).
Do You Pay Taxes on Inheritance in California?
No, not directly. It’s worth understanding the difference between the two related terms people often use interchangeably: an inheritance tax is charged to the person receiving assets, while an estate tax is charged to the estate itself before distribution. California has no inheritance tax and, since 2005, no state estate tax either.
The only tax exposure comes from what happens after you receive the assets, such as capital gains if you sell an appreciated property, or a property tax reassessment if you inherit real estate that isn’t your primary residence.
What This Means for Your Estate Plan
The passage of the One Big Beautiful Bill Act removes one major planning pressure for most families, but it does not make estate planning optional. Proposition 19’s limits on property transfers, capital gains exposure on appreciated assets, and the rules around inherited retirement accounts all still require attention. A plan built before these rules existed may no longer work as intended.
Contact a San Diego Estate Planning Attorney at Frisella Neilson, APC
If you have already done your estate planning in San Diego, now is a good time to review it in light of the new federal exemption amounts. If you have not yet created a plan, the current environment offers more certainty and more room to structure things efficiently than families have had in years. Attorney Lisa J. Frisella works with San Diego families on exactly these questions.
If you have questions about an inheritance or want to review your estate plan in light of recent changes, our team at Frisella Neilson, APC, is here to help. Fill out our online contact form or call (619) 260-3500.
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