Inheritance taxes can significantly impact the amount of money heirs receive from an estate. In California, the rules are unique because the state does not impose an inheritance tax. However, other tax implications can affect your inheritance, including federal estate taxes. Here’s what you need to know about inheritance taxes in California and how to navigate them effectively.
1. Does California Have an Inheritance Tax?
No, California does not impose an inheritance tax. Regardless of the amount you inherit, you won’t owe state inheritance taxes. However, if you inherit property or assets from someone who lived in a state that does have an inheritance tax, you may be required to pay taxes to that state.
It’s important to be aware of the laws in the state where the deceased person resided. States like Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania impose inheritance taxes, which can range from 1% to 18%, depending on your relationship to the deceased.
2. Federal Estate Tax Considerations
While California doesn’t have an inheritance tax, federal estate taxes may apply if the estate’s value exceeds the federal exemption limit. As of 2024, the federal estate tax exemption is $12.92 million per individual ($25.84 million for married couples). Estates exceeding this amount are subject to a federal estate tax rate of up to 40%.
If you’re inheriting from a high-value estate, it’s crucial to understand the potential impact of federal estate taxes. Approved Inheritance Cash recommends consulting with a tax advisor to navigate these complexities.
3. Capital Gains Tax on Inherited Property
In California, one of the most significant tax implications for heirs involves capital gains tax on inherited property. When you inherit real estate or other valuable assets, you receive a “step-up” in basis, which adjusts the property’s value to its fair market value at the time of the original owner’s death.
This step-up in basis can reduce capital gains taxes if you decide to sell the property later. For example, if your parents bought a house for $100,000 and it’s worth $1 million when you inherit it, your cost basis becomes $1 million. If you sell it for $1.2 million, you only pay capital gains tax on the $200,000 profit.
However, if you hold onto the property and its value continues to increase, you may face higher capital gains taxes when you eventually sell it.
4. Income Tax on Inherited Retirement Accounts
If you inherit a traditional IRA, 401(k), or other retirement account, you may owe income tax on withdrawals. Under the SECURE Act, most non-spouse beneficiaries must withdraw the full balance within 10 years of the account owner’s death, potentially increasing their income tax liability.
To minimize taxes on inherited retirement accounts:
- Consider spreading withdrawals over the 10-year period to avoid moving into a higher tax bracket.
- Consult with a financial advisor to develop a tax-efficient withdrawal strategy.
Approved Inheritance Cash can help you access funds quickly if you need to cover taxes or other expenses related to inherited retirement accounts.
5. Gifting and Estate Planning Strategies
One way to reduce federal estate taxes is through strategic gifting. In 2024, the annual gift tax exclusion allows individuals to gift up to $17,000 per recipient ($34,000 for married couples) without incurring gift taxes or reducing their lifetime exemption.
High-net-worth individuals can reduce their taxable estate by gifting assets during their lifetime, helping their heirs avoid federal estate taxes. Consulting with an estate planning attorney can help you develop a gifting strategy that aligns with your financial goals.
Why Choose Approved Inheritance Cash
Navigating inheritance taxes and other financial obligations can be overwhelming, especially during probate. Approved Inheritance Cash offers fast and reliable inheritance loans to help heirs access their funds quickly. Our services include:
- No credit check required
- Fast approval and funding
- Transparent terms with no hidden fees
We understand the complexities of inheritance taxes and are here to provide financial solutions when you need them the most.
