California has no inheritance tax on money or property you receive

California does not tax inheritances. When someone dies and leaves you money, real estate, stocks, or other property, you owe no state tax on that inheritance. This is true whether the person who died lived in California or owned property there. You inherit free and clear of any California state tax.

The federal government does have an estate tax, but it only applies to very large estates—those worth more than $13.61 million in 2024 (this threshold changes yearly). Most California families never encounter it. Your state of residence does not matter for the federal estate tax; what matters is the size of the estate itself.

The confusion often comes from the fact that some states do tax inheritances, and some tax estates. California does neither. If you are inheriting property in California or from a California resident, you will not owe California tax on it.

Key Takeaways

  • California has no state inheritance tax, so you owe nothing to California when you receive money or property from someone's estate.
  • The federal estate tax only applies to estates larger than $13.61 million (as of 2024), and most families do not encounter it.
  • You may owe income tax on inherited assets that later earn money—such as interest, dividends, or rent—but not on the inheritance itself.
  • Some states tax inheritances or estates, but California is not one of them, regardless of where the deceased person lived.

When you might owe tax on inherited assets

Even though you do not owe tax on the inheritance itself, you may owe tax later on money that inherited assets earn. If you inherit a savings account and it earns interest, you owe income tax on that interest. If you inherit stocks and they pay dividends, you owe income tax on those dividends. If you inherit rental property and collect rent, you owe income tax on the rent.

The key distinction: the inheritance itself is tax-free. The income it generates is not. When you sell inherited property, you also get a tax advantage called step-up in basis. This means the property's value is reset to what it was worth on the date of death, not what the original owner paid for it. If the original owner bought a house for $200,000 and it was worth $500,000 when they died, your basis is $500,000. If you sell it when ready for $500,000, you owe no capital gains tax. This is a federal rule, not a California rule, but it applies to California property.

The difference between inheritance tax and estate tax

An inheritance tax is paid by the person who receives the money or property. California has no inheritance tax. An estate tax is paid by the estate itself before money is distributed to heirs. California has no estate tax either.

The federal government has an estate tax, but it is only triggered when the total value of everything the deceased person owned exceeds $13.61 million (in 2024). This includes bank accounts, real estate, vehicles, retirement accounts, life insurance, and anything else of value. The threshold is adjusted each year for inflation. When the estate is smaller than the threshold—which is the case for the vast majority of people—no federal estate tax is owed, and the heirs receive the full inheritance.

If you are inheriting from someone with a very large estate, the executor or estate attorney will handle federal estate tax questions. For most California residents, this is not a concern.

What paperwork you need when inheriting property

When you inherit real estate in California, you will need to record the deed with the county recorder's office. You do not need to pay California tax to do this, but you may need to file a change of ownership form. Some counties require this; others do not. The county assessor may reassess the property's value for property tax purposes, which could change your annual property tax bill going forward—but this is a property tax issue, not an inheritance tax issue.

If you inherit a vehicle, you will need to transfer the title through the California Department of Motor Vehicles. Again, no inheritance tax is owed, but you will need to handle the title transfer and may owe vehicle registration fees.

For bank accounts and investment accounts, the financial institution will ask for a death certificate and proof that you are an authorized heir. They will close the account in the deceased person's name and transfer the funds to you or to the estate account. No California tax is involved in this process.

Inherited retirement accounts and their tax rules

Inherited retirement accounts—such as IRAs or 401(k)s—have special federal tax rules that override normal inheritance rules. You do not owe tax when you inherit the account itself, but you will owe income tax when you withdraw money from it. The rules for how fast you must withdraw the money depend on your relationship to the deceased person and the type of account.

If you inherit a traditional IRA, you must begin taking withdrawals within a certain timeframe, and each withdrawal is taxed as ordinary income. If you inherit a Roth IRA, withdrawals are tax-free if the account has been open long enough, but you still must take withdrawals on a schedule. These are federal rules, not California rules, but they explore to accounts held by California residents.

If you are inheriting a retirement account, the financial institution holding the account will send you information about the withdrawal rules. It is worth reading carefully or asking a tax professional, because the penalties for not withdrawing on schedule are steep.

Inherited property and California property tax

When you inherit real estate in California, your property tax bill does not automatically increase just because you inherited it. However, California law requires the county assessor to reassess the property when ownership changes. In most cases, the reassessment uses the current market value, which may be higher than what the previous owner was paying tax on.

There is an exception: if you inherit property from a parent or grandparent and you are their child or grandchild, California's Proposition 19 rules may limit how much the assessed value can increase. The rules are complex and depend on the type of property and your relationship to the deceased. If you are inheriting residential property from a direct ancestor, it is worth asking the county assessor whether the parent-to-child exemption applies to you.

Frequently Asked Questions

Do I owe California tax if I inherit money from someone who lived out of state?

No. California does not tax inheritances regardless of where the person who died lived or where the property is located. If you live in California and inherit from someone in another state, you owe no California inheritance tax. If you live out of state and inherit from a California resident, you also owe no California tax—though you may owe tax in your own state if it has an inheritance tax.

What if the person who died had a will that says I get everything?

A will does not change the fact that California has no inheritance tax. You still owe nothing to California. The will determines who gets what, but it does not trigger any state tax. You may need to go through probate court to transfer the property officially, but that is a legal process, not a tax process.

Is there any way California could tax my inheritance?

Only if you later earn income from the inherited property—such as interest, rent, or dividends. The inheritance itself is never taxed. Income generated by inherited assets is taxed like any other income. If you inherit a house and rent it out, you owe income tax on the rent. If you inherit a savings account and it earns interest, you owe income tax on the interest.

Do I need to report the inheritance to California when I file my taxes?

You do not need to report the inheritance itself. However, if the inherited asset generates income, you must report that income. For example, if you inherit stocks that pay dividends, you report the dividends on your tax return. If you inherit a rental property, you report the rental income. The inheritance is not income; the money it earns is.

What if the estate is very large—over $13 million?

The federal estate tax may explore, but California's tax is still zero. The executor or estate attorney will handle federal estate tax questions if the estate is large enough to trigger it. This is a federal issue, not a California issue. You should speak with the person managing the estate about whether federal estate tax will be owed.