How Much Is California Inheritance Tax?

Wealth transfer taxes are a category of taxation applied to the transfer of assets from one individual to another, either during life or after death. These taxes generally fall into two main types: inheritance taxes and estate taxes. An inheritance tax is typically levied on the person who receives the assets, meaning the beneficiary pays the tax on the value of the property inherited. Conversely, an estate tax is imposed on the total value of a deceased person’s property and assets before they are distributed to heirs. Understanding these distinctions is important when considering how wealth is transferred across generations.

California’s Stance on Inheritance Tax

California does not impose an inheritance tax on assets received by beneficiaries from a deceased person’s estate. This means individuals inheriting property or money from a California resident do not owe a state-level tax. The state’s inheritance tax was repealed by voters in 1982 through Proposition 6. This legislative change significantly simplified the process for beneficiaries receiving assets.

Whether the assets are real estate, financial accounts, or personal property, the act of inheriting them does not trigger a state tax obligation for the recipient. This contrasts with a few other states that do levy an inheritance tax, which can add a significant financial burden to beneficiaries.

Federal Estate Tax

While California does not have an inheritance tax, residents may still be subject to the federal estate tax. This is a tax on the right to transfer property at death, and it applies to the total value of a deceased person’s taxable estate. The estate includes all assets, such as real estate, stocks, bonds, business interests, and other property, minus certain deductions.

For 2025, the federal estate tax exemption amount is set at $13.61 million per individual. This means that estates valued below this threshold generally do not owe federal estate tax. For married couples, the exemption is effectively doubled, allowing them to transfer up to $27.22 million without federal estate tax liability, provided proper planning is in place, such as portability elections. Estates exceeding this exemption amount are subject to a top federal estate tax rate of 40%.

The federal estate tax primarily impacts high-net-worth individuals and families. Estates that exceed the exemption are required to file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, with the Internal Revenue Service (IRS). Even if no tax is due, filing may be necessary to elect portability of the deceased spousal unused exclusion amount to a surviving spouse.

California Estate Tax History

California previously had its own estate tax, but it was effectively eliminated in 1982, concurrent with the repeal of the inheritance tax. Prior to this change, California’s estate tax was often referred to as a “pick-up” tax. This type of tax was designed to claim a portion of the federal estate tax credit for state death taxes. The federal government previously allowed a credit against the federal estate tax for certain state estate, inheritance, legacy, or succession taxes paid.

When the federal credit for state death taxes was phased out in 2001, California’s estate tax became nullified. The state’s estate tax law was directly tied to this federal credit, meaning that when the federal credit disappeared, California no longer had a mechanism to collect its estate tax. Consequently, California does not impose a separate state estate tax. This historical context is important for understanding why neither an inheritance tax nor a state estate tax is currently levied in California.

Gift Tax Considerations

Beyond estate and inheritance taxes, the federal government also imposes a gift tax on transfers of property made during a person’s lifetime. This tax applies to gifts exceeding certain annual and lifetime exemption amounts. The purpose of the gift tax is to prevent individuals from avoiding estate tax by giving away their assets before death. It is important to understand that the gift tax is typically paid by the person making the gift, not the recipient.

For 2025, individuals can give away up to $19,000 per recipient annually without incurring gift tax or using their lifetime exemption. This annual exclusion applies to gifts made to any number of individuals. Gifts exceeding this annual exclusion amount begin to reduce an individual’s lifetime gift tax exemption, which is unified with the federal estate tax exemption. This means that the total amount an individual can give away during their life and at death, without incurring federal transfer taxes, is cumulatively limited by the same $13.61 million exemption amount for 2025.