California does not impose a state inheritance tax. This means that beneficiaries inheriting assets from a decedent who was a California resident are not required to pay state taxes on their inheritance. However, it’s important to understand the nuances of federal estate taxes and potential tax implications when inheriting property, especially for California residents.
Federal Estate Tax Considerations
While California lacks a state-level inheritance or estate tax, the federal government imposes an estate tax on estates exceeding a certain threshold. As of 2024, the federal estate tax exemption is $13.61 million per individual, meaning estates valued below this amount are exempt from federal estate taxes. For married couples, this exemption is portable, allowing a combined exemption of up to $27.22 million. It’s crucial to note that this exemption is scheduled to decrease significantly at the end of 2025, potentially subjecting more estates to federal taxation.
Inheritance from Out-of-State Decedents
If you inherit property from someone who resided in a state that imposes an inheritance tax, you may be subject to that state’s tax laws, even if you are a California resident. For example, states like Maryland and New Jersey have inheritance taxes that could affect your inheritance. It’s essential to consult with a tax professional to understand any obligations you might have in such scenarios.
Capital Gains Tax Implications
Inheriting property can have capital gains tax implications, particularly concerning the property’s “basis.” Generally, the basis of inherited property is “stepped up” to its fair market value at the time of the decedent’s death. This step-up in basis can significantly reduce capital gains taxes if the property is sold shortly after inheritance. However, if the property appreciates after you’ve inherited it, you may be liable for capital gains tax on the appreciation from the time of inheritance to the time of sale.
Property Tax Reassessment
In California, transferring property through inheritance can trigger a property tax reassessment, potentially increasing property taxes. However, certain parent-child and grandparent-grandchild transfers may be excluded from reassessment under specific conditions. It’s advisable to consult with a legal professional to navigate these rules effectively.
Estate Planning Considerations
Given the complexities of federal estate taxes and potential implications from other states’ inheritance taxes, it’s prudent for California residents to engage in comprehensive estate planning. Strategies such as lifetime gifting, establishing trusts, and charitable donations can help minimize tax liabilities and ensure that your assets are distributed according to your wishes. Consulting with estate planning attorneys and tax professionals can provide personalized guidance tailored to your circumstances.
In summary, while California does not have a state inheritance tax, federal estate taxes and other tax considerations can impact the value of inherited assets. Staying informed and seeking professional advice is essential to navigate the complexities of inheritance and estate taxes effectively.
Contact the top-rated California trust and probate attorneys Moravec, Varga & Mooney today to schedule a telephonic consultation. Have questions, call (626) 460-1763 or email LV@MoravecsLaw.com.
Southern California Probate Lawyer Serving all counties in California, including Los Angeles, Riverside, San Bernardino, Sacramento, Santa Cruz & Beyond.
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