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FINANCE

What taxes should I file if I receive an inheritance of more than $100.00 in California?

The state of California does not tax inheritance or gifts received. However, you will be taxed on additional income that it provides. We have a look.

Update:
Inheritance tax in California

Most states in the US do not have inheritance or estate taxes, and over time even of those that do some are phasing them out. California falls into the group of states that does not consider an inheritance or gifts income for tax purposes. Note though, that if you receive an inheritance from someone that lives in a state that does apply inheritance taxes, you may have to file a tax declaration there.

The federal government as well allows taxpayers to transfer wealth in the form of gifts prior to the death of the giver up to a certain amount each year, but the receiver of an inheritance does not have to report the initial bequeathment. However, once that windfall starts providing you with income, you will have to report it to the State of California Franchise Tax Board as well as the Internal Revenue Service when you file you annual tax declaration.

What taxes should I file if I receive an inheritance of more than $100.00 in California?

As mentioned, the initial amount that you receive in the form of inheritance, or gift, will not be considered taxable income in the Golden State. But once that asset begins generating income for you, a stock portfolio begins paying out dividends or tenants of a rental property start sending you the monthly rent for example, that will be considered taxable income that needs to be declared on your annual tax forms.

Additionally, when you sell the asset for more than its value at the time of receipt, you will have to pay capital gains taxes. It is recommendable to speak to a certified tax professional to avoid running afoul of tax man.

Which states have inheritance taxes?

The majority of states don’t treat inheritances as income. But there are six states that do including Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania where it will have to be reported on state income tax forms.

Most states have been reducing the tax burden placed on estates and inheritance for residents. For example Iowa has been phasing out its inheritance tax, which will be fully eliminated in 2025. Nebraska in 2023 lowered its rates and increased exemption amounts.

Reforms are also being implemented for estate taxes. Currently, there are twelve states including Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and District of Columbia that will impose an estate tax for valuations above a certain threshold.

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