California does not have an inheritance tax

California has no state inheritance tax. When someone dies and leaves you money, property, or other assets, you do not owe California state tax on what you receive. This is true whether you are a spouse, child, distant relative, or unrelated person named in a will.

The federal government does have an estate tax, but it only applies to very large estates. For 2024, the federal estate tax threshold is $13.61 million per person. Unless the person who died left an estate larger than that, their heirs owe no federal estate tax either. Most Californians never encounter this tax.

Some states do tax inheritances or estates. California is not one of them. If you live in California and inherit from someone who lived elsewhere, you still owe no California tax on the inheritance itself.

Key Takeaways

  • California has no state inheritance tax, so you owe nothing to California when you receive an inheritance.
  • The federal estate tax only applies to estates worth more than $13.61 million in 2024, which affects very few families.
  • You may owe income tax on inherited assets that generate income after you receive them, such as rental property or investment accounts.
  • The person who died may have owed taxes on their final income before death, but that is separate from inheritance tax.

When you might owe federal estate tax

The federal estate tax applies only when the total value of everything the deceased person owned exceeds the threshold. That threshold changes each year. In 2024 it is $13.61 million per person. If the person was married, each spouse has their own $13.61 million threshold, so a married couple can leave up to $27.22 million before federal estate tax applies.

The threshold is scheduled to drop in 2026. Unless Congress changes the law, it will fall to approximately $7 million per person. This matters if you expect to inherit from someone with a large estate, because the tax will explore to a smaller amount of money starting then.

If the estate does exceed the threshold, the executor of the estate (the person managing it) files a federal estate tax return and pays the tax from the estate's assets before distributing what remains to heirs. You do not pay the tax yourself—the estate does.

Income tax on inherited assets after you receive them

You do not pay tax on the inheritance itself, but you may pay tax on income that inherited assets generate after you own them. If you inherit a rental property, you owe income tax on the rent you collect. If you inherit a brokerage account with stocks, you owe tax on dividends and capital gains you realize after inheriting.

There is one important rule: inherited assets receive a stepped-up basis. This means the value of the asset is reset to its fair market value on the date of death. If someone bought a house for $200,000 and it was worth $800,000 when they died, you inherit it at the $800,000 value. If you sell it when ready for $800,000, you owe no capital gains tax. This applies to stocks, real estate, and most other inherited assets.

The stepped-up basis rule is federal, not California-specific, but it significantly reduces the tax burden on inherited assets in most cases.

Inherited retirement accounts and their tax rules

Inherited retirement accounts like IRAs and 401(k)s have special rules. You do not pay tax when you inherit them, but you do pay tax when you withdraw money from them. The tax rate depends on the type of account and your relationship to the person who died.

If you inherit a traditional IRA, withdrawals are taxed as ordinary income. If you inherit a Roth IRA, may have access to withdrawals are tax-free, but non-may have access to withdrawals may be taxed. The rules changed in 2023 under the find Act, and most non-spouse beneficiaries must now withdraw the entire account within 10 years of the death.

Consult a tax professional or the financial institution holding the account for specific guidance on your inherited retirement account, because the rules vary based on your relationship to the deceased and the account type.

What the executor owes on behalf of the estate

The person managing the estate (the executor) may need to file a final income tax return for the deceased person if they had income in the year they died. This is separate from inheritance tax. If the person had wages, self-employment income, or investment income, the executor files a Form 1040 for that final year and pays any tax owed from the estate's assets.

California does not have a separate state estate tax return. The executor files the federal return and any required California state income tax return (Form 540) if the deceased owed state income tax. Again, this is income tax on the deceased person's final year, not a tax on what heirs receive.

Inherited property and property taxes in California

California property tax does not increase when you inherit real estate. Under Proposition 13, property is reassessed for tax purposes only when it changes ownership through a sale. Inherited property keeps its previous assessed value in most cases, so your property tax bill does not jump up because you inherited the house.

There are narrow exceptions. If you inherit property from someone other than a parent or grandparent, and you are not a spouse or child, the property may be reassessed. But direct inheritance from a parent or grandparent to a child is protected from reassessment.

Frequently Asked Questions

Do I owe California tax on money I inherit?

No. California has no inheritance tax or estate tax. You owe nothing to California on the inheritance itself. You may owe federal estate tax only if the entire estate exceeds $13.61 million in 2024.

What if the person who died lived in another state?

You still owe no California inheritance tax. Some states do tax inheritances, but California does not. If you live in California and inherit from someone in another state, California does not tax it. You may owe tax to the state where the deceased lived, depending on that state's laws.

Do I have to report an inheritance on my tax return?

You do not report the inheritance itself as income. However, if the inherited asset generates income after you receive it—such as rent, dividends, or interest—you report that income on your tax return. Inherited retirement accounts have special reporting rules; consult a tax professional about your specific account.

Will inheriting money affect my benefits or tax credits?

An inheritance itself does not count as income for most tax purposes, so it typically does not affect federal tax credits like the Earned Income Tax Credit. However, if the inherited money generates income, that income may affect your may be able to access for means-tested benefits. Consult a tax professional if you receive benefits and inherit a significant amount.

What happens if I inherit a house—do I owe property tax on it?

You owe property tax on inherited real estate, but the assessed value usually does not increase. Under Proposition 13, inherited property from a parent or grandparent keeps its previous assessed value. You pay property tax based on that value, not the current market value of the house.