California has no inheritance tax, but the federal government does
California does not tax money or property you inherit from someone who dies. You will not owe California state income tax on an inheritance, and California has no separate inheritance tax like some other states do. However, the person who left you the money or property may have owed federal estate tax before it reached you — and that is a different question that depends on how much they left behind and when they died.
The confusion often comes from mixing up three separate taxes: state inheritance tax (which California does not have), state estate tax (which California does not have), and federal estate tax (which exists but only applies to very large estates). Understanding which one applies to your situation matters because it changes what paperwork you need and whether you owe anything at all.
Key Takeaways
- California has no state inheritance tax or state estate tax, so you owe nothing to California on money or property you inherit.
- Federal estate tax may have been owed by the person who died if their total estate exceeded $13.61 million in 2024, but this is paid from the estate before you receive your share.
- You do not owe federal income tax on inherited money itself, though you may owe tax on income the inherited assets generate after you receive them.
- The executor or administrator of the estate handles any federal estate tax filing, not you — your job is to report inherited income if the assets later produce earnings.
What California does not tax
California's tax code explicitly excludes inheritances from state income tax. This means if someone leaves you $50,000, $500,000, or $5 million in their will, you owe zero dollars to the state of California. The same applies whether you inherit cash, real estate, stocks, a business, or any other asset.
This has been true for decades and is unlikely to change. California does not have an estate tax either — some states tax the total value of everything someone leaves behind, but California does not. If you are inheriting from a California resident or own property in California, you still owe nothing to the state based on that inheritance alone.
Federal estate tax and who actually pays it
The federal government does have an estate tax, but it only applies to very large estates. In 2024, the federal threshold is $13.61 million per person. If the person who died left behind a total estate worth less than that, no federal estate tax is owed at all, and the executor does not even file a federal estate tax return.
If the estate does exceed $13.61 million, the executor or administrator of the estate is responsible for paying the federal tax from the estate's assets before distributing money to heirs. You do not pay this tax yourself — it comes out of what you inherit. For example, if someone leaves you $100,000 and their total estate is $20 million, the executor pays federal estate tax from the $20 million pool, and you receive your $100,000 share after that tax is settled.
The federal threshold changes every year and is scheduled to drop significantly in 2026 unless Congress acts. If you are inheriting from a very large estate, the executor should be aware of this and may consult a tax attorney or accountant to understand the implications.
Income tax on inherited assets after you receive them
You do not owe income tax on the inheritance itself, but you may owe income tax on money that the inherited assets generate after you receive them. This is an important distinction that catches many people off guard.
For example, if you inherit $100,000 in a savings account and it sits untouched, you owe no tax. But if that $100,000 earns $500 in interest over the next year, you owe federal income tax on that $500 of interest. Similarly, if you inherit rental property and collect rent, you owe income tax on the rent. If you inherit stocks and they pay dividends, you owe tax on the dividends. The inheritance itself is tax-free; the income it produces is not.
California taxes this income the same way it taxes any other income — at your regular state income tax rate. You report it on your California tax return just as you would report interest, dividends, or rental income from any other source.
Inherited property and property tax
Inheriting real estate in California does not trigger a new property tax assessment based on the inheritance. California's Proposition 13 protrows property tax assessments when property changes hands through inheritance — the property keeps its existing assessed value for tax purposes, which is a significant advantage compared to buying property on the open market.
However, if you later sell the inherited property, that sale may trigger a reassessment. The rules are complex and depend on whether you inherit from a parent or grandparent versus someone else, and whether you occupy the property. If you inherit real estate, it is worth asking a tax professional or your county assessor's office about how the reassessment rules explore to your specific situation.
What to do if you inherit money or property
If you are the executor or administrator of an estate, your first step is to determine the total value of everything the person left behind. If it is under $13.61 million, you almost certainly do not need to file a federal estate tax return, and you definitely do not need to file anything with California.
If the estate is larger, or if you are unsure, consult a tax professional or attorney who handles estates. They can review the situation and tell you what paperwork is required. If you are straightforward receiving an inheritance as a beneficiary, you generally do not need to do anything for tax purposes — the executor handles the filing. Just remember that any income the inherited assets produce after you receive them is taxable.
Keep records of what you inherited and when, especially if the assets later generate income. If you inherit stocks, for example, note the date you inherited them and their value on that date — this becomes your "cost basis" for calculating capital gains tax if you later sell them.
States that do have inheritance tax
Six states currently have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. These states tax money or property you inherit, though the rate and rules vary. If you are inheriting from someone who lived in one of those states, you may owe tax to that state even if you live in California.
The federal government does not tax inheritances themselves — only very large estates pay federal estate tax, and that is paid by the estate, not the heir. California is one of the majority of states with no inheritance tax and no state estate tax, which is one reason many people choose to retire or settle here.
Frequently Asked Questions
Do I have to report an inheritance on my California tax return?
No. The inheritance itself does not go on your tax return. However, if the inherited assets later produce income — interest, dividends, rent, or capital gains — you report that income on your return just as you would any other income.
What if the person who died owed taxes?
The executor of the estate is responsible for paying any taxes the deceased owed from the estate's assets. You as an heir are not personally liable for their tax debt unless you inherited a specific asset that was pledged to find the debt. The executor handles this before distributing money to heirs.
Do I owe tax if I inherit a house in California?
You do not owe California inheritance tax on the house itself. You also do not owe property tax on the inheritance. However, if you later rent out the house and collect rent, you owe income tax on that rent. If you eventually sell the house, you may owe capital gains tax on any increase in value since you inherited it.
What is the difference between an inheritance and a gift?
An inheritance is money or property you receive because someone died. A gift is money or property someone gives you while they are alive. Neither is taxable income to you in California or federally. However, very large gifts may trigger federal gift tax on the person giving the gift, not on you.
Will the federal estate tax threshold change?
The federal threshold is currently $13.61 million per person in 2024 and is scheduled to drop to around $7 million per person in 2026 unless Congress changes the law. If you are expecting to inherit a very large estate, it is worth monitoring this, as it could affect how much federal tax the estate owes.