California Estate Tax: The State Has None, Federal Still Applies

Many people assume a large California estate owes a state “death tax.” It does not. California is among the majority of states with neither an estate tax nor an inheritance tax, a point introduced in the broader California estate planning overview. This article explains what the state repealed, when the federal estate tax applies, and which taxes a California estate can still owe.

California repealed its death taxes in 1982

California once levied both an inheritance tax and a gift tax. In June 1982, voters passed Proposition 6, which repealed those taxes and added Cal. Rev. & Tax. Code § 13301. That section provides that neither the state nor any local government “shall impose any gift, inheritance, succession, legacy, income, or estate tax” on a transfer occurring by reason of a death.

One narrow provision survives on paper. Cal. Rev. & Tax. Code § 13302 imposes a California estate tax equal to the federal “credit for state death taxes”, a pick-up tax that captured a share of what the estate would otherwise send the federal government, at no extra cost to the estate. Congress phased that federal credit out and replaced it with a deduction in 2005, so the pick-up tax now collects nothing. Either way the outcome is identical: a California estate pays the state no tax on the transfer of assets at death.

The federal estate tax and the 2026 exemption

The federal estate tax is the only death tax that can apply to a California resident’s estate. It taxes the transfer of everything a person owns at death, but only above a large exemption. Under the IRS estate tax rules, an estate files a federal return (Form 706) only when the total value of the estate plus certain lifetime gifts exceeds the filing threshold for the year of death. For deaths in 2026, that threshold is $15,000,000 per person, up from $13,990,000 in 2025, and estates above it are taxed at graduated rates that top out at 40%.

The exemption belongs to each individual, so a married couple can generally shield twice the single amount by combining both spouses’ exemptions, a mechanism the federal rules call portability. Because the exemption is this high, only a small share of estates are ever large enough to owe federal estate tax, and most California estates file no federal estate tax return at all.

Property tax reassessment under Proposition 19

Even with no estate tax, one California tax can climb when property passes at death: property tax. Under Proposition 13, a home’s assessed value is capped until the property changes ownership. Cal. Rev. & Tax. Code § 63.2, the statute implementing Proposition 19, provides that, beginning February 16, 2021, a transfer of a principal residence between a parent and a child is excluded from reassessment only if the child uses the home as their own principal residence. Even then the exclusion is limited: it covers the home’s existing assessed value plus $1,000,000, and value above that amount is added to the taxable base.

Income taxes a California estate can still owe

No estate tax does not mean no tax at all. An estate or trust can owe income tax on income earned after the person dies, such as interest, dividends, rent, or gains on estate assets. The California Franchise Tax Board requires the executor to file a fiduciary income tax return (Form 541) when a California estate has gross income over $10,000, net income over $1,000, or income from a California source. This is a tax on what the estate earns, separate from any tax on the transfer of the assets themselves.

Heirs generally take inherited assets at a stepped-up basis: the asset’s value is reset to its fair market value on the date of death, which can reduce or erase capital gains tax if the heir later sells. Retirement accounts are the main exception, because withdrawals from an inherited traditional IRA or 401(k) are still taxed as ordinary income to the person who receives them.

When another state’s death tax can reach a California estate

California’s lack of a death tax protects assets located in California. It does not protect real estate or tangible property a California resident owns in a state that does tax estates or inheritances. A minority of states and the District of Columbia impose an estate tax, an inheritance tax, or both, and several apply that tax to in-state real property owned by a nonresident. An estate that includes an out-of-state vacation home or rental can owe a death tax to that state even though California charges none. The location of the property, not the residence of the owner, usually controls whether another state’s tax applies.