Is There An Inheritance Tax in California?
Many people have questions about estate planning, and one we hear at Desert Law Group often is, “Does California have an inheritance tax?” People want to ensure that their loved ones aren’t burdened with unexpected taxes when they pass away.
Since 2001, we’ve helped families across Palm Springs, Indian Wells, Rancho Mirage, and the surrounding areas create estate plans that protect their wealth and provide peace of mind.
So, let’s clear up any confusion about inheritance taxes in California and what you should keep in mind when planning your estate.
No Inheritance Tax in California
The good news? California does not have an inheritance tax. The state eliminated this tax in 1982, meaning if you inherit money or property from someone in California, you won’t owe state taxes on that inheritance.
It’s important to understand the distinction between inheritance tax and estate tax:
- Inheritance tax is paid by the recipient (the person inheriting money or property).
- Estate tax is paid by the deceased person’s estate before assets are distributed.
What About Estate Taxes?
California also does not have a state estate tax. However, the federal government does impose an estate tax on very large estates. For 2025, the federal estate tax exemption is $13.99 million per person—meaning only estates above that amount are subject to taxation.
For most families, this means estate taxes won’t be a concern. But if your estate is near or above the federal exemption limit, estate planning strategies can help minimize tax exposure. Remember, the current law is due to expire on December 31, 2025. We will provide updates as the changes occur.
Other Taxes That Might Affect Your Inheritance
While California doesn’t tax inheritances, there are still potential tax considerations to keep in mind.
Income Tax
Generally, inherited assets are not counted as taxable income. However, any income those assets generate after being inherited could be taxable. For example:
- Rental income from an inherited property
- Interest earned on an inherited savings account
- Dividends from inherited stocks
These earnings must be reported on your tax return and could be subject to state and federal income taxes.
Capital Gains Tax
When you inherit property, stocks, or other assets that have increased in value, you may owe capital gains tax if you sell them. However, there’s a tax rule called the step-up in basis that helps reduce what you might owe.
How the Step-Up in Basis Works
When you inherit an asset, its tax basis is reset to the fair market value at the time of the original owner’s death. This means you’re only responsible for capital gains tax on any appreciation that occurs after you inherit the asset rather than since the time it was originally purchased.
For example:
- Your parents bought a house for $200,000 years ago.
- When they pass, the home is worth $600,000.
- Your step-up in basis resets the value to $600,000.
- If you later sell the house for $650,000, you only owe capital gains tax on the $50,000 gain—not the full $450,000 increase since your parents first bought it.
Property Taxes
California’s Proposition 13 helps keep property taxes relatively stable, but inheriting real estate can sometimes trigger a property tax reassessment. If you inherit a home, it’s important to understand whether it qualifies for Parent-Child Exclusion under Proposition 19, which limits property tax increases for inherited properties used as primary residences.
If you plan to keep inherited real estate, consulting with an estate planning attorney can help you understand your property tax obligations and potential exemptions. Call our office and we can help.
Why Estate Planning Still Matters
Even without a state inheritance tax, estate planning is still essential. It’s not just about taxes—it’s about making sure your wishes are honored, and your loved ones are taken care of.
Here are some key reasons to have a solid estate plan in place:
Protecting Assets and Wealth for Future Generations
Without proper planning, your estate could be subject to unnecessary costs, delays, or even disputes. A well-structured estate plan ensures that what you’ve worked hard for is preserved and passed down according to your wishes.
Minimizing Potential Tax Burdens
While California doesn’t have an inheritance tax, federal estate taxes, capital gains taxes, and property taxes can still impact what your beneficiaries receive. Smart estate planning can help reduce these tax burdens and maximize what’s left for your heirs.
Avoiding Probate (or Making It Smoother and Less Costly)
Probate is the legal process of settling an estate, and it can be lengthy, expensive, and stressful. In California, probate is a very burdensome process. A carefully crafted estate plan—including the use of revocable living trusts—can help bypass probate or at least make the post death process more efficient and cost-effective.
Ensuring Your Wishes Are Honored
Your estate plan is about more than just wealth—it’s about making sure your intentions are clear. This includes:
- Naming guardians for minor children
- Specifying how assets should be distributed
- Making healthcare decisions with an Advance Healthcare Directive
- Choosing someone to handle your financial and medical decisions if you become incapacitated
Providing Peace of Mind
Knowing that everything is in order can bring peace of mind to both you and your loved ones. With an estate plan in place, your family won’t have to worry about legal hurdles or unexpected complications during an already difficult time.
Ready to Secure Your Family’s Future?
If you want to ensure that your estate is protected and your loved ones won’t face unnecessary complications, we’re here to help. Contact Desert Law Group today at 760-239-5661 to schedule a consultation.
Let’s discuss your goals and put a plan in place that gives you peace of mind. You can also visit our Contact Us page for more information. We proudly serve clients in Palm Springs, Indian Wells, Rancho Mirage, and surrounding areas.
