Income Tax Rates
The lower 2026 federal tax brackets under the TCJA—ranging from 10% to 37%— will revert to their pre-2018 counterparts, which top out at 39.6%. These higher rates may result in increased tax liabilities for nearly all taxpayers.
However, this benefit is temporary and is scheduled to end on December 31, 2025. After this date, the exemption will revert to the 2017 level of $5.49 million, adjusted for inflation1, which would reduce the amount that can be transferred tax-free in one's estate.
The bill would, for taxable years beginning on or after January 1, 2026, impose an annual tax at a rate of 1% of a residents worldwide net worth in excess of $50,000,000, or in excess of $25,000,000 in the case of a married taxpayer filing separately.
Increased Capital Gain Tax Rates for High-Income Earners: One of the most significant changes set for 2026 is the increase in long-term capital gains tax rates for high-income earners. Currently, the highest tax rate for long-term capital gains is 20%. Starting in 2026, the new highest expected rate is 25%.
Without congressional action the cap will expire and the full deduction will be restored on January 1, 2026.
Estate tax credits.
Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, increased from $13,610,000 for estates of decedents who died in 2024. Annual exclusion for gifts increases to $19,000 for calendar year 2025, rising from $18,000 for calendar year 2024.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
In 2026, personal exemptions would return and be valued at $5,300. The standard deduction would shrink, and be valued at $8,350 for single filers, $16,700 for joint filers, and $12,250 for head of household filers, compared to $15,450, $30,850, and $23,150, respectively, if the TCJA instead continued.
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $19,000 in cash or property during the 2025 tax year and up to $18,000 in the 2024 tax year without triggering a gift tax return.
For single filers and heads of households age 65 and over, the additional standard deduction will increase slightly — from $1,950 in 2024 (returns you'll file soon in early 2025) to $2,000 in 2025 (returns you'll file in early 2026).
Key takeaways. If the current law is unchanged, as of Jan 1, 2026 the current lifetime estate and gift tax exemption will be cut approximately in half. Families concerned with estate tax liability may want to consider options for transferring assets and their appreciation out of their estate sooner rather than later.
For 2024, the additional standard deduction amounts for taxpayers who are 65 and older or blind are: $1,950 for Single or Head of Household (increase of $100) $1,550 for married taxpayers or Qualifying Surviving Spouse (increase of $50)
So Social Security payments made by the employer are considered "before-tax income" (and hence, not taxable). So the value of the "before-tax income" received by the beneficiary (i.e., the employer's contribution) is potentially taxable.
In most cases, an inheritance isn't subject to income taxes. The assets passed on in an investment or bank account aren't considered taxable income, nor is life insurance. However, you could pay income taxes on the assets in pre-tax accounts.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
There are four ways you can avoid capital gains tax on an inherited property. You can sell it right away, live there and make it your primary residence, rent it out to tenants, or disclaim the inherited property.
Absent any legislative action, the current temporarily increased exemptions are set to revert to pre-2018 levels on Jan. 1, 2026, adjusted for inflation. This means the exemptions will drop to amounts estimated to be around $7 million per individual or $14 million for a married couple.
For decedents that died prior to June 8, 1982, the State Controller's Office will continue to collect the Inheritance Tax. For gifts made prior to June 8, 1982, the State Controller's Office will continue to collect the Gift Tax.
Rise in standard deductions
For heads of households, it is $22,500 for tax year 2025, up $600 from tax year 2024. For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction increases to $15,000 for 2025, up $400 from 2024.
Starting in 2026, tax rates are scheduled to revert to the higher pre-2018 levels. The table below shows the existing and anticipated tax rates if the TCJA sunsets. In addition, the brackets will be compressed, causing higher tax rates to kick in at lower income thresholds.
For tax years beginning on or after January 1, 2018, and before January 1, 2026, section 250 generally allows a deduction equal to the sum of 37.5% of the corporation's FDII plus 50% of its GILTI (thereafter, these deductions are reduced to 21.875% and 37.5%, respectively).
Taxpayers who are 65 or older can take an additional standard deduction, which is also adjusted for inflation. For tax year 2025, that amount is $2,000 for single filers and $1,600 for others.