The Federal Exemption: $15 Million and Permanent

The Tax Cuts and Jobs Act doubled the federal estate tax exemption starting in 2018. That increase was originally set to expire at the end of 2025, which would have brought the exemption back down to roughly $7 million. The One Big Beautiful Bill Act (OBBBA) section 70411 changed that — it locked in the higher exemption permanently and set the figure at $15 million per person for decedents dying after December 31, 2025, indexed for inflation going forward.

For 2025 the exemption was $13.99 million. For 2026 it climbs to $15 million per individual. A married couple with proper planning — either through portability or credit shelter trusts — can protect $30 million from federal estate tax. Anything above the exemption gets taxed at 40%.

Portability allows a surviving spouse to claim the deceased spouse’s unused federal exemption by filing Form 706 within the required timeframe, even if no tax is due. This is one of those things that people skip because it feels unnecessary at the time and then regret later.

California Has No State Estate Tax

California repealed its state estate tax in 1982, and voters passed Proposition 6 in the same year to prohibit it from returning without another ballot measure. As of 2026, there’s been no successful effort to reinstate it. No inheritance tax either.

This puts Los Angeles residents in a different position from people in states like New York, Massachusetts, Oregon, or Washington, where state-level estate taxes kick in at much lower thresholds. A New York estate worth $8 million faces a significant state estate tax bill. The same estate in California owes nothing at the state level.

That said, “no state estate tax” doesn’t mean “no state-level complications.” California’s income tax rates are the highest in the nation (top rate 13.3%), and the way inherited assets are handled for income tax purposes still matters — particularly for appreciated real estate.

Stepped-Up Basis and Los Angeles Real Estate

This is where LA property values make the federal rules especially relevant. A home purchased in Silver Lake for $350,000 in 1995 that’s now worth $2.5 million represents over $2 million in unrealized capital gains. If the owner sells during their lifetime, they owe capital gains tax on that appreciation (after the $250,000/$500,000 exclusion).

If they die and pass it to heirs, the property gets a stepped-up basis to its fair market value at the date of death. The $2 million in appreciation vanishes for income tax purposes. The heirs can sell immediately and owe little to no capital gains tax.

The OBBBA preserved this stepped-up basis rule. Earlier proposals in Congress had floated eliminating or capping it, but those didn’t make it into the final law. For Los Angeles families with appreciated real estate, this is the single most valuable estate planning provision in the tax code.

Planning Considerations for LA Residents

Even without a state estate tax, estate planning in Los Angeles involves real complexity — mostly because of property values and the types of assets people hold here.

• Revocable living trusts — standard in California estate planning, primarily to avoid probate (which is expensive in this state, based on a statutory fee schedule tied to estate value)
• Irrevocable trusts for large estates — if your estate approaches $15 million, moving assets into irrevocable trusts now locks in the current exemption amount
• Qualified personal residence trusts (QPRTs) — transfer a home at a discounted gift tax value under IRC Section 2702 while retaining the right to live there for a set term
• Annual exclusion gifting — $19,000 per recipient in 2026, or $38,000 per recipient for married couples, completely outside the estate and gift tax system
• Charitable planning — donor-advised funds and charitable remainder trusts reduce the taxable estate while generating current income tax deductions

California’s probate system deserves its own mention. Statutory probate fees in California are based on the gross value of the estate — not the net value. A home worth $3 million with a $2.5 million mortgage is treated as a $3 million asset for fee purposes. This is why nearly every estate plan in Los Angeles includes a revocable trust.

Community Property and Double Step-Up

California is a community property state. When one spouse dies, both halves of community property receive a stepped-up basis — not just the deceased spouse’s half. This “double step-up” is a significant benefit that common-law states don’t provide.

For a married couple in LA holding a jointly owned home they bought decades ago, this means the surviving spouse gets a full step-up on the entire property. If the home is worth $4 million and the original purchase price was $500,000, the surviving spouse’s new basis is $4 million, not $2.25 million. That difference can save hundreds of thousands in capital gains tax if the surviving spouse eventually sells.

Sources

• IRS — Estate Tax Overview
• IRS — About Form 706, U.S. Estate Tax Return
• IRS — Topic 703, Basis of Assets
• IRS — Gift Tax FAQs
• 26 U.S.C. § 2010 — Unified Credit Against Estate Tax
• 26 U.S.C. § 2702 — Special Valuation Rules (QPRTs)
• 26 U.S.C. § 121 — Exclusion of Gain From Sale of Principal Residence
• 26 U.S.C. § 1014 — Basis of Property Acquired From a Decedent
• California FTB — Tax Rates
• California Probate Code § 10810 — Statutory Attorney Fees