The Federal Estate Tax Exemption Is $15 Million in 2026: What LA Families Inheriting a Home Need to Know

Here is the short answer: the estate tax "sunset" that families across the country were told to prepare for never happened. Congress cancelled it in July 2025, and the federal estate tax exemption is now $15 million per person in 2026, not the roughly $7 million that was widely expected. For the vast majority of Los Angeles families inheriting a home, that means no federal estate tax at all, and California does not have a state estate tax to worry about either.

In 25 years of guiding Los Angeles families through probate and estate transitions, I have heard the same fear at kitchen tables across Southern California: "Will the government take Mom and Dad's house to pay taxes?" It is one of the most persistent worries in inherited property, and it is also one of the most misunderstood. Let me walk you through what actually changed in 2026, when an estate truly has to file a federal estate tax return, and why the tax that matters most for inherited homes in California is usually Proposition 19, not the estate tax.

What Everyone Expected: The 2026 Sunset That Never Happened

The estate tax exemption has been a moving target for years. The Tax Cuts and Jobs Act of 2017 doubled the federal exemption through December 31, 2025, and for most of that time the plan was simple: on January 1, 2026, the doubling would expire and the exemption would fall back to roughly $7 million per person. Estate planners built strategies around that date for years, and families with homes and investments anywhere near the line were told to prepare for a lower threshold.

That did not happen. In July 2025, Congress passed the One Big Beautiful Bill Act, which cancelled the sunset entirely. Starting January 1, 2026, the federal estate and gift tax exemption is $15 million per individual, and married couples can combine their exemptions through portability for up to $30 million. The new amount is inflation-indexed beginning in 2027, and there is no automatic expiration date. The top estate tax rate remains 40%, but it only applies to the portion of an estate above the exemption.

Why Most LA Families Inheriting a Home Will Never Owe Estate Tax

First, the California piece: California has no state estate tax and no inheritance tax. Unlike states such as Oregon, Washington, or Massachusetts, California does not tax estates at the state level at all. For a family in Los Angeles, the only estate tax that could ever apply is the federal one.

Second, the federal numbers: for a death in 2026, the basic exclusion amount is $15 million. That means an estate must be worth more than $15 million, counting the home, investments, retirement accounts, life insurance proceeds the decedent owned, and other assets, before a single dollar of federal estate tax is owed. Even a very valuable Los Angeles home, one worth $3 million or $5 million, is a fraction of that threshold. For the vast majority of families, the answer is simple: no federal estate tax, no Form 706, no estate tax bill.

There is one more piece of good news that surprises most people: inherited homes receive a step-up in basis. When you inherit a home, its tax basis becomes its fair market value on the date of death, not what your parents paid decades ago. If you sell soon after inheriting, you generally owe little or no capital gains tax on the appreciation that happened during your parents' lifetime. The estate tax is not the tax that keeps LA families from keeping or selling the family home; for most, it is not a factor at all.

When an Executor Must Actually File Form 706

Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, is the return that reports the estate to the IRS. It is required in two situations:

• The estate is above the exemption. If the gross estate, plus adjusted taxable gifts made during life and any specific exemption already used, exceeds $15 million for a death in 2026, the executor must file Form 706.
• The executor wants to elect portability. Portability lets a surviving spouse use the unused portion of the deceased spouse's exemption, and it applies even when the estate is far below the threshold. To make the election, the executor must file a timely Form 706, even if no tax is owed.

The deadline matters: Form 706 is due nine months after the date of death. The executor can request an automatic six-month extension of time to file by submitting Form 4768 before the original due date. Note that the extension extends the time to file, not the time to pay; if tax is owed, interest runs on any amount paid after the original due date. And portability is only valid if the return is filed on time, within the nine months or before the end of the extension period.

How Inherited Homes Get Valued in the Estate

In a California probate case, the value of the estate's real property is established through the inventory and appraisal process. The court appoints a probate referee, an independent appraiser, who determines the fair market value of the home as of the date of death. That appraised value is filed with the court and becomes the official value of the property for the estate.

The same date-of-death value is what matters for federal estate tax purposes. If the estate is anywhere near the $15 million line, the executor should work with a CPA or estate attorney who specializes in estate tax to make sure the valuation is accurate and well documented. If the estate is clearly far below the threshold, the probate referee's appraisal simply does its normal job for the court inventory, and the estate tax question never comes up.

The Real Tax Issue for LA Inherited Homes: Proposition 19

Here is the honest truth I share with every family: for inherited homes in California, the tax that actually changes your numbers is almost never the estate tax. It is the property tax reassessment under Proposition 19.

Since voters approved Proposition 19 in 2020, most transfers of a family home from parents to children trigger a reassessment to current market value, which can multiply the property tax bill. There are narrow exceptions: a principal residence that the child moves into within one year, up to an exclusion cap, and certain disaster and wildfire scenarios. For families who keep an inherited home as a rental or a second home, the reassessment is essentially automatic. I have written about this in detail, and it is worth reading before you decide to keep, rent, or sell the family home.

A Practical Checklist for Executors and Families

1. Know the numbers. For a death in 2026, the federal exemption is $15 million per person, and married couples can combine up to $30 million through portability. California has no state estate tax.
2. Do not assume the worst. A home worth $1 million, $3 million, or even $5 million is not an estate tax problem by itself. Add up the whole estate before you worry.
3. Watch the nine-month clock. If the estate is above the exemption, or if you want to elect portability, Form 706 is due nine months from the date of death, with a possible six-month extension to file.
4. Start the appraisal early. The probate referee's date-of-death appraisal serves the estate inventory, and the same value feeds the estate tax picture. In LA County, where probate can stretch 12 to 18 months, the IRS deadline comes first.
5. Read up on Proposition 19. The property tax reassessment is the tax that actually affects most inherited homes in California. Understand the one-year principal residence clock and the exclusion cap before deciding to keep, rent, or sell.
6. Get professional help when the numbers are close. If the estate is anywhere near $15 million, or involves multiple properties, a trust, or a surviving spouse, work with a CPA and estate attorney who know federal estate tax.