California does not have a state estate tax

California abolished its state estate tax in 2005. There is no California state-level tax on the value of property you leave behind when you die. This is different from the federal estate tax, which still exists and applies to estates above a certain value regardless of which state you live in.

Because California has no state estate tax, your heirs will not owe California taxes on what they inherit from you. However, they may still owe federal estate taxes if your total estate exceeds the federal threshold, which changes yearly. The federal limit for 2024 is $13.61 million per person, but this amount is scheduled to drop significantly in 2026 unless Congress acts.

Key Takeaways

  • California has no state estate tax, so your heirs pay no state tax on inherited property.
  • The federal estate tax still applies to California residents if their estate exceeds the federal threshold, which is $13.61 million per person in 2024.
  • The federal threshold is set to drop to roughly $7 million per person in 2026 unless Congress changes the law.
  • California does have an inheritance tax on certain beneficiaries in rare circumstances involving non-resident aliens.

How the federal estate tax works for California residents

Even though California has no state tax, the federal government taxes large estates. When you die, your estate's total value is calculated. This includes real estate, bank accounts, investments, retirement accounts, life insurance, and personal property. If that total exceeds the federal threshold, your estate owes federal tax on the amount above the limit.

The federal threshold is high enough that most California residents do not owe federal estate tax. For 2024, only estates worth more than $13.61 million per person are subject to federal tax. However, this threshold is temporary. Under current law, it drops to approximately $7 million per person on January 1, 2026, unless Congress extends it. This means estates that are safe from federal tax today could owe tax after 2026.

Your spouse can inherit your entire estate tax-free under the unlimited marital deduction, regardless of the amount. This is true for both state and federal purposes. If you are married, you can also combine your thresholds with your spouse through a process called portability, which allows your unused threshold to transfer to them.

What about inheritance tax on specific beneficiaries

California does have a narrow inheritance tax that applies only to certain non-resident aliens who inherit from California residents. This tax is extremely rare and applies only when a non-resident alien inherits property and meets specific conditions. Most beneficiaries—including U.S. citizens, permanent residents, and resident aliens—do not owe California inheritance tax.

If you are leaving property to someone who is not a U.S. citizen and does not live in California, you should consult with a tax professional or attorney to understand whether this rare tax might apply. The rules are complex and depend on the beneficiary's immigration status and residency at the time of your death.

How California's property tax works for inherited real estate

While California has no estate or inheritance tax, inherited real estate does face a different tax issue: property tax reassessment. When you inherit real property in California, the county assessor may reassess the property's value for property tax purposes. This can result in a significant increase in annual property taxes, even though no estate tax is owed.

There are limited exceptions to reassessment. If you inherit property from a parent or grandparent, you may be able to exclude the property from reassessment under Proposition 19, though the rules changed in 2021 and are now stricter. If you inherit from a spouse, the property is typically excluded from reassessment. You should contact your county assessor's office after inheriting real estate to understand how reassessment will affect your property taxes.

Planning for federal estate tax if your estate is large

If your estate is close to or exceeds the federal threshold, you have options to reduce what your heirs will owe. Common strategies include making gifts during your lifetime (you can give up to $18,000 per person per year in 2024 without using your lifetime threshold), establishing trusts, and using life insurance in specific ways. These strategies require planning before you die.

You can also leave money to charity, which reduces your taxable estate. Charitable donations can be structured through your will, a charitable trust, or other vehicles. The key is that these decisions need to be made and documented while you are alive. After death, it is too late to reduce the estate tax bill.

The difference between California and other states

Some states still have their own estate taxes or inheritance taxes. Washington, Oregon, and several other states tax large estates at the state level in addition to federal tax. If you move to California from a state with an estate tax, or if you own property in multiple states, the rules become more complex. Property located in another state may be subject to that state's estate or inheritance tax even if you live in California.

If you own real estate, business interests, or other significant assets in another state, you should discuss this with an attorney or tax professional. They can help you understand which state's taxes might apply and whether you need to file returns in multiple states.

Frequently Asked Questions

Will my heirs owe California taxes on what I leave them?

No. California has no state estate tax or inheritance tax for most beneficiaries. Your heirs will not owe California state tax on inherited property. They may owe federal estate tax if your total estate exceeds the federal threshold, but that is a federal obligation, not a California one.

What is the federal estate tax threshold for 2024?

The federal threshold is $13.61 million per person in 2024. Estates worth less than this amount owe no federal estate tax. The threshold is scheduled to drop to approximately $7 million per person on January 1, 2026, unless Congress extends it.

Can my spouse inherit my entire estate without owing tax?

Yes. Your spouse can inherit any amount from you without owing federal or state estate tax, thanks to the unlimited marital deduction. This applies whether your spouse is a U.S. citizen or a permanent resident, though the rules differ slightly for non-citizen spouses.

If I inherit real estate in California, will my property taxes go up?

Possibly. Inherited real estate may be reassessed for property tax purposes, which can increase your annual property taxes. Exceptions exist for property inherited from a parent, grandparent, or spouse, but the rules are strict. Contact your county assessor after inheriting property to understand how reassessment will affect you.

What if I own property in another state as well as California?

Property located in another state may be subject to that state's estate or inheritance tax, even if you live in California. You should discuss multi-state property ownership with a tax professional or attorney to understand your obligations in each state.