California does not have a state estate tax

California stopped collecting an estate tax in 2005 and has not reinstated one since. If you die as a California resident, your estate will not owe California state taxes on the property you leave behind, no matter how large the estate is.

However, your estate may still owe federal estate tax to the U.S. government if it exceeds a certain size. Federal rules are separate from California rules. The federal threshold changes yearly and currently sits much higher than most estates reach, but it is a real obligation for some families.

The absence of a state estate tax does not mean your property transfers tax-free. Other taxes — including income tax on inherited retirement accounts, property tax on real estate transfers, and capital gains tax — may apply depending on what you own and who inherits it.

Key Takeaways

  • California has no state estate tax, so your heirs will not owe California taxes on inherited property.
  • Federal estate tax may still apply if your total estate exceeds the federal threshold, which changes each year and is currently over $13 million for individuals.
  • Inherited property may trigger other taxes, including capital gains tax and income tax on retirement accounts, even though there is no estate tax.
  • The federal threshold is scheduled to drop significantly in 2026 unless Congress acts, which could affect more California estates.

How federal estate tax works for California residents

Federal estate tax is a tax on the total value of everything you own when you die — your house, bank accounts, investments, retirement accounts, life insurance, and personal property. The federal government taxes estates that exceed a threshold amount. For 2024, that threshold is $13.61 million per person. If your estate is smaller, no federal tax is owed.

The threshold is indexed to inflation, meaning it rises slightly each year. It is also temporary. Congress set current rates to expire on December 31, 2025, after which the threshold will drop to roughly $7 million per person (adjusted for inflation) unless lawmakers extend the higher amount. This change affects how families should plan.

Your executor — the person named in your will to handle your estate — is responsible for filing a federal estate tax return if the estate exceeds the threshold. The return is due nine months after death, though an extension can be requested. If tax is owed, it comes out of the estate before heirs receive their inheritance.

What property counts toward the federal threshold

The federal government counts nearly everything you own at death. This includes your primary home, rental properties, investment accounts, bank accounts, vehicles, jewelry, art, and life insurance proceeds. Retirement accounts like IRAs and 401(k)s count at their full value, even though they pass directly to named beneficiaries outside your will.

Some property does not count. Money left to a surviving spouse generally does not count because of the marital deduction — spouses can inherit unlimited amounts without triggering federal tax. Charitable donations also do not count. Gifts you made during your lifetime may count if they exceeded annual limits, but most people stay well under those limits.

The value used is the fair market value on the date of death, not what you originally paid. A house worth $800,000 when you bought it but $2 million when you die counts at $2 million. This is why estates in high-cost California counties sometimes exceed the threshold even when the person did not feel wealthy.

Other taxes that may apply to inherited property in California

Even without a state estate tax, California heirs face other tax obligations. Capital gains tax applies when inherited property is sold. If you inherit a house worth $1 million and sell it for $1.2 million, you owe capital gains tax on the $200,000 gain — but only the gain, not the full sale price. This is true whether the estate was large enough to owe federal tax or not.

Inherited retirement accounts trigger income tax when money is withdrawn. If you inherit a traditional IRA or 401(k), withdrawals are taxed as ordinary income. Roth IRAs are different — may have access to withdrawals are tax-free, but non-may have access to withdrawals are taxed. The rules changed in 2023, and most non-spouse beneficiaries must now empty inherited accounts within ten years.

Property tax on real estate transfers is generally not triggered by inheritance in California. However, if you later sell inherited real estate, you pay property tax on the sale price. If you rent out inherited property, you pay income tax on the rental income. These are ongoing taxes, not one-time estate taxes.

The 2026 federal threshold change and what it means

The current high federal estate tax threshold expires at the end of 2025. Starting January 1, 2026, the threshold will drop to approximately $7 million per person (adjusted for inflation) unless Congress votes to extend the higher amount. This is a major change for California families with substantial property.

A married couple with a combined estate of $14 million would owe no federal tax under 2024 rules but could owe federal tax on half their estate under 2026 rules. California real estate values make this scenario common in the Bay Area, Los Angeles, and San Diego. Families with estates in this range should review their plans now rather than waiting.

Some people use strategies like irrevocable trusts or lifetime gifts to reduce the size of their taxable estate before the threshold drops. These strategies require planning and legal help. A tax attorney or estate planner can review your situation and explain whether these tools make sense for you.

How to learn about your estate might owe federal tax

Add up the current value of everything you own: your home, other real estate, investment accounts, retirement accounts, life insurance, and personal property. If the total is below the federal threshold for your situation, federal estate tax is not a concern. If it is close to or above the threshold, or if it will be above the lower 2026 threshold, you should talk to an estate planner or tax attorney.

Your estate's value can change over time. A house that appreciates, a business that grows, or an inheritance you receive can push you over the threshold. Reviewing your situation every few years — and especially before 2026 — helps you understand whether planning steps make sense.

An estate planner or tax attorney can review your specific situation, explain the federal rules that apply to you, and discuss strategies if your estate is large. This is not something you need to figure out alone, and professional guidance often saves money in the long run.

Frequently Asked Questions

If California has no estate tax, do I need to worry about taxes when I die?

Not necessarily. If your estate is below the federal threshold (currently $13.61 million per person), no federal estate tax is owed. However, other taxes may apply when property is sold or inherited, such as capital gains tax or income tax on retirement accounts. A tax professional can review your specific situation.

What happens to my house when I die — does my family have to pay tax to keep it?

Your family does not owe California estate tax on an inherited house. They may owe federal estate tax if your total estate exceeds the federal threshold, but that is rare. If they later sell the house, they owe capital gains tax on any increase in value since your death, not on the full sale price.

Does my spouse inherit everything tax-free?

Yes, under federal law. Spouses can inherit unlimited amounts without triggering federal estate tax because of the marital deduction. However, when your spouse later dies, their estate may owe federal tax if it exceeds the threshold at that time. State income tax on inherited retirement accounts still applies.

Will the 2026 threshold change affect me?

Only if your estate is likely to exceed $7 million per person (or $14 million for a married couple) by 2026. If your estate is currently below $13.61 million but above $7 million, the change could affect you. If you are well below $7 million, the change will not matter. A tax professional can help you understand your situation.

Can I reduce my estate to avoid federal tax?

Yes, through strategies like lifetime gifts, irrevocable trusts, or charitable donations. These strategies require planning and legal help, and they are not right for everyone. If your estate is large or close to the federal threshold, an estate attorney can explain which strategies might work for your situation.