California does not have a state estate tax

California abolished its state estate tax in 2005. If you inherit property or money in California, you will not owe a state-level estate tax to California, regardless of the size of the estate or your relationship to the person who died.

However, the federal government still collects an estate tax on very large estates. The federal threshold changes yearly — in 2024 it applies only to estates worth more than $13.61 million. Most California residents do not owe federal estate tax either, because their estates fall below that limit.

Some other states still collect estate taxes or inheritance taxes. If you inherit from someone who lived in or owned property in another state, that state's rules may apply to you, even if you live in California.

Key Takeaways

  • California has no state estate tax, so inheriting money or property in California does not trigger a state tax bill.
  • Federal estate tax only applies to estates larger than $13.61 million in 2024, and that threshold changes each year.
  • If the person who died owned property in another state, that state's estate or inheritance tax may still apply.
  • Inheriting money is not the same as earning income, so you do not owe income tax on an inheritance in California or federally.
  • The person who died may have owed taxes on their estate before death, but that is separate from what you owe as the person receiving the inheritance.

Federal estate tax and the yearly threshold

The federal estate tax is a tax on the total value of everything a person owned when they died — their house, bank accounts, investments, vehicles, and personal property. The federal government only collects this tax if the estate is worth more than a certain amount, called the exemption threshold.

That threshold is not fixed. Congress sets it, and it changes most years. In 2024, the federal exemption is $13.61 million per person. An estate worth $13.6 million owes nothing. An estate worth $14 million owes federal tax only on the amount above $13.61 million. The threshold is scheduled to drop to roughly $7 million per person in 2026, unless Congress changes the law.

If you are inheriting from someone whose estate is below the threshold for that year, there is no federal estate tax to pay. If the estate is above the threshold, the executor of the estate (usually named in the will) handles the tax bill before distributing money to heirs. You as the heir do not pay the federal estate tax yourself — the estate pays it first.

Inheritance tax versus estate tax

Estate tax and inheritance tax are different things, and the confusion matters because some states use one, some use the other, and some use both.

Estate tax is paid by the estate itself — the pool of money and property left behind. The executor pays it from the estate's assets before distributing anything to heirs. California has no estate tax. The federal government has an estate tax.

Inheritance tax is paid by the person who receives the inheritance. A few states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — collect inheritance tax. If you inherit from someone who lived in one of those states, you may owe that state an inheritance tax, even if you live in California. The amount depends on your relationship to the person who died and the value of what you inherited. Spouses and children often pay nothing or a reduced rate.

California has neither. You will not owe California an estate tax or an inheritance tax.

What happens if the deceased owned property in another state

If the person who died owned real estate, a business, or other significant property in another state, that state may claim the right to tax the estate. This is true even if the person lived in California and you live in California.

For example, if your parent died and owned a rental house in New York, New York may assess an estate tax on that property's value. The executor will need to file a tax return in New York and may need to pay New York estate tax before the property can be transferred to you.

The same rule applies to inheritance tax states. If you inherit from someone who lived in Pennsylvania, Pennsylvania may tax you on the inheritance even if you live in California. You would owe Pennsylvania's inheritance tax, not California's (since California has none).

This is why it matters to know where the person who died lived and what property they owned. The executor or the estate's attorney can tell you which states may have a claim.

Income tax on inherited money and property

Inheriting money or property does not create income tax. You do not owe California income tax or federal income tax on the amount you inherit, no matter how large it is.

However, if the inherited property generates income after you receive it, you owe tax on that income. For example, if you inherit a rental house, you owe income tax on the rent you collect. If you inherit a stock portfolio, you owe income tax on dividends. If you inherit a bank account and it earns interest, you owe tax on the interest.

The inheritance itself — the lump sum or the property transfer — is tax-free. The income it produces afterward is not.

When the estate itself owes taxes before distribution

The person who died may have owed income taxes, property taxes, or other debts before they died. The estate pays these bills before you receive your inheritance. This is not a tax you owe — it is a debt the estate settles.

If the estate does not have enough money to pay all debts and taxes, heirs may receive less than expected, or nothing. The executor is responsible for figuring out what is owed and in what order bills get paid. California law sets the priority: funeral expenses and estate administration costs come first, then taxes, then other debts, then what is left goes to heirs.

You should ask the executor or the estate's attorney what debts exist and how much money will be left to distribute. This helps you understand what to expect.

Frequently Asked Questions

Do I owe California taxes on an inheritance?

No. California has no estate tax or inheritance tax. You will not owe California any tax on money or property you inherit. If the person who died owned property in another state, that state may tax the estate, but California will not.

What if the estate is worth millions of dollars?

If the estate is worth more than $13.61 million in 2024, the federal government may collect an estate tax on the amount above that threshold. The executor pays this tax from the estate before distributing money to heirs. You do not pay it yourself. Most California estates are smaller than this and owe no federal tax.

If I inherit a house, do I owe property tax on it?

You will owe property tax going forward as the new owner, but not on the inheritance itself. California property tax is an annual tax on real estate ownership, not an inheritance tax. You pay it each year you own the property, just as the previous owner did.

What if my relative died in another state but lived in California?

California has no estate tax, so you owe nothing to California. However, the state where your relative died may have an estate or inheritance tax. The executor will need to determine which states have a claim on the estate based on where property was located and where the person lived.

Can I inherit money without anyone knowing about it?

Inheritances are usually documented through a will, trust, or probate court. If there is a will, it goes through probate court in California, which is a public process. If there is a trust, the trustee distributes money privately. Either way, large inheritances may be reported to the IRS or other agencies. You should work with the executor or an attorney to understand the process and any reporting requirements.