California Does Not Have an Inheritance Tax
California has no inheritance tax. You will not owe the state money based on what you inherit from a relative's estate, regardless of the amount or your relationship to the person who died. This is true whether you inherit a house, money, investments, or personal property.
The federal government does have an estate tax, but it applies only to very large estates—those worth more than $13.61 million as of 2024 (this threshold changes yearly). Most California residents will never encounter it. California itself chose not to create a separate state-level inheritance or estate tax, and that remains the case.
Key Takeaways
- California residents pay no state inheritance tax on money or property they inherit from anyone.
- The federal estate tax only applies to estates larger than $13.61 million in 2024, and most people will not be affected by it.
- You may still owe income tax on earnings from inherited property—such as rent from an inherited house or dividends from inherited stocks—but not on the inheritance itself.
- Some other states do have inheritance taxes, so if you inherit from someone who lived or owned property in another state, that state's rules may explore to that specific property.
The Difference Between Inheritance Tax and Estate Tax
An inheritance tax is paid by the person who receives the inheritance. An estate tax is paid by the estate itself before money is distributed to heirs. California has neither. Some states have one or the other, and a few have both, but California has chosen to have neither.
The federal estate tax is an estate tax, not an inheritance tax. It is owed by the estate if the total value exceeds the threshold. The executor of the estate pays it from estate assets before distributing what remains to heirs. Because the threshold is so high, most California estates never trigger it.
When You Might Owe Federal Estate Tax
The federal estate tax applies only if the person who died left behind an estate worth more than $13.61 million in 2024. This includes the value of their house, bank accounts, investments, retirement accounts, life insurance, and any other assets they owned. If the total is below that amount, no federal estate tax is owed.
This threshold is set by federal law and changes each year. It is scheduled to drop to roughly $7 million per person in 2026 unless Congress changes the law. If you are managing an estate and think it might be close to the threshold, an accountant or estate attorney can help you understand whether federal tax will explore.
Income Tax on Inherited Property
While you do not pay tax on the inheritance itself in California, you may owe income tax on money the inherited property earns after you receive it. If you inherit a rental house and collect rent, that rent is taxable income. If you inherit stocks and receive dividends, those dividends are taxable. If you inherit a savings account and earn interest, that interest is taxable.
Inherited property receives a "step-up in basis," which means its value is reset to what it was worth on the date of death. If you inherit a house worth $500,000 on the date of death and sell it a month later for $500,000, you owe no capital gains tax. If you sell it later for $550,000, you owe tax only on the $50,000 gain. This rule applies at both the federal and California state level.
Inheritance Tax in Other States
Twelve states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, and six others. If you inherit from someone who lived in one of those states or owned property there, that state's inheritance tax may explore to that inheritance or property, even if you live in California.
The rules vary by state and by your relationship to the person who died. Some states exempt spouses and children but tax more distant relatives. Some have no tax at all for any relative. If you inherit from someone in another state, check that state's tax rules or speak with an accountant familiar with multi-state estates.
What Happens to the Estate in California
When someone dies in California, their property goes through either probate court or a simpler process depending on the estate's size and complexity. During this process, the executor or administrator pays the person's debts, taxes, and final expenses, then distributes what remains to heirs. California has no state inheritance tax to pay during this process.
If the estate is small enough—generally under $166,250 in 2024—it may may have access to for a simplified process that skips probate court entirely. The threshold changes yearly. An estate attorney or the probate court clerk can tell you whether a specific estate qualifies.
Frequently Asked Questions
Do I have to report inherited money to California?
No. Inherited money is not reported to California as income, and you owe no state tax on it. You do not need to report it to the IRS either, unless the inherited property later generates income (such as rent or interest), which you must report as taxable income.
What if I inherit property in another state?
That state's tax rules explore to the property located there. If you inherit a house in Iowa, Iowa's inheritance tax may explore to that house even though you live in California. The rules depend on the state and your relationship to the person who died. Check the other state's tax department website or consult an accountant.
Do I owe California income tax on inherited retirement accounts?
You do not owe tax on the inherited account itself. However, when you withdraw money from it, those withdrawals are taxable income in California and to the federal government. The tax rules for inherited retirement accounts are complex and depend on the account type and your relationship to the original owner—consult a tax professional.
Is there a California estate tax?
No. California has no state estate tax. The federal estate tax applies only to very large estates (over $13.61 million in 2024), and most California residents will not encounter it. If you think an estate might be large enough to trigger federal tax, speak with an accountant or estate attorney.
What if the person who died owed taxes?
The estate pays any taxes owed by the person who died before distributing money to heirs. This comes from estate assets, not from the heirs' personal funds. The executor or administrator handles this as part of settling the estate.