Introduction
If you live in California or inherit assets from someone who did, you may wonder whether estate or inheritance taxes apply. While California has no estate or inheritance tax, large estates may still be subject to federal estate tax and other income tax consequences. Here’s what you need to know in 2025.
Does California Have an Estate or Inheritance Tax?
Applicable Code:
- IRC §2001 (Federal Estate Tax)
- California repealed its estate tax under Proposition 6 (1982)
California does not impose a separate estate or inheritance tax. Beneficiaries do not owe a tax simply for receiving an inheritance from a California resident.
The Federal Estate Tax in 2025
The federal estate tax exemption for 2025 is:
- $13.61 million per individual
- $27.22 million per married couple (with proper planning and portability)
Tax rate:
- 40 percent on the value of an estate above the exemption threshold
Example:
An estate valued at $16 million (single individual) has a taxable estate of $2.39 million. The estate tax would be $956,000.
Tax Implications When a California Resident Dies
| Tax Type | Applies? | Who Pays |
|---|---|---|
| California Estate Tax | No | N/A |
| Federal Estate Tax | Yes (if applicable) | Estate |
| California Inheritance Tax | No | N/A |
| Income Tax on Inherited IRA | Yes | Beneficiary |
| Property Tax Reassessment | Yes (often) | Beneficiary or Heir |
Key Point: Even if no inheritance or estate tax is due, income tax may apply on inherited IRAs, and property taxes may be reassessed after death.
Tax-Saving Tools for Estate Planning
- Revocable Living Trust – Avoids probate and maintains privacy
- Irrevocable Life Insurance Trust (ILIT) – Excludes insurance proceeds from taxable estate
- Grantor Retained Annuity Trust (GRAT) – Useful for large estates
- Charitable Trusts – Supports philanthropy while reducing estate value
- Annual Gift Exclusion – Gift up to $18,000 per person in 2025 without reducing your lifetime exemption
- Step-Up in Basis – Resets the basis of appreciated assets to date of death value
Property, Trusts, and Out-of-State Heirs
California does not tax inheritance, but real property inherited in California may trigger property tax reassessment, unless protected under Proposition 19 exclusions (e.g., parent-to-child transfers).
Out-of-state heirs receive a stepped-up basis for federal and California income tax purposes. When inherited property is sold, capital gains are calculated using the stepped-up basis.
Step-by-Step Guide to Reduce Tax Exposure
Step 1:
Calculate your total estate value including property, investments, retirement accounts, and insurance.
Step 2:
Establish or update a revocable living trust and durable power of attorney.
Step 3:
Use the annual gift exclusion to transfer wealth tax-free during your lifetime.
Step 4:
Explore irrevocable trusts and advanced gifting strategies if you expect to exceed the federal exemption.
Step 5:
Track cost basis on all investments and property to help heirs benefit from step-up rules.
Step 6:
Consult a CPA and estate attorney to coordinate your legal and tax strategies.
Conclusion
California residents and their heirs can breathe easier knowing there’s no state-level estate or inheritance tax, but federal estate taxes and income taxes on certain inherited assets may still apply. Proactive estate planning using trusts, gifts, and step-up strategies can preserve more wealth for future generations.
Call to Action
Do you have questions about estate taxes, trusts, or multi-generational wealth planning?
Schedule a meeting with Anshul Goyal, CPA EA FCA, a U.S.-licensed CPA, IRS Enrolled Agent, and estate planning specialist who helps high-net-worth families protect and transfer wealth efficiently.
Schedule now: https://calendly.com/anshulcpa
FAQs – California Estate and Inheritance Tax
Q1: Does California have an estate or inheritance tax in 2025?
No. California repealed both taxes. Only federal estate tax applies above the exemption.
Q2: Do I have to pay taxes on an inherited house?
No inheritance tax, but you may owe property taxes if reassessment applies and income tax on capital gains when sold.
Q3: How can I avoid federal estate tax?
Use annual gifts, irrevocable trusts, and charitable strategies to reduce your estate value before death.
Q4: Are inherited IRAs taxable in California?
Yes. Distributions from inherited IRAs are subject to income tax for both federal and state purposes.
Q5: What is the gift tax limit for 2025?
You may gift up to $18,000 per person annually without using your lifetime estate and gift tax exemption.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, an IRS Enrolled Agent, and a Fellow Chartered Accountant. With over 15 years of experience, he provides high-level estate tax planning, gift strategy, and compliance services to families, professionals, and business owners across the U.S.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Estate tax laws may change, and planning should be tailored to individual circumstances. Please consult with a qualified CPA or estate attorney before taking action.