How do I report income from an inheritance or a trust on my California tax return?

California does not have an inheritance or estate tax, so you do not report the value of the inherited assets themselves as income. You are, however, required to report any taxable income you receive from a trust or income that your inherited assets generate after you receive them. Here's how to report that income: Step 1: Obtain Your Tax Document The trustee of the trust or the executor of the estate is required to provide you with a California Schedule K-1 (Form 541). This form details your specific share of the income, deductions, and credits from that trust or estate for the tax year. You should receive this document by mid-March for the prior tax year. Step 2: Identify Your Income on the Schedule K-1 Review the Schedule K-1 carefully. It will break down the character of the income you received (e.g., interest, dividends, capital gains). You need this information to properly report it on your personal tax return. Step 3: Transfer the Information to Schedule CA (540) You will report the total income from your California K-1 on Schedule CA (540), "California Adjustments." The income is typically reported on Part I, Section B, Line 8f, under the "Estate and trust" column. The instructions for the Schedule K-1 provide specific guidance on where to report each type of income. Step 4: File Your California Tax Return Include the completed Schedule CA (540) with your main California tax return (Form 540). You must file your return with the California Franchise Tax Board (FTB) by the annual April 15th tax deadline, unless you file for an extension. Important details and nuances: Distributions of principal (the original assets held by the trust or estate) are generally not taxable to you as the beneficiary. The Schedule K-1 specifically reports your share of the taxable income, not principal distributions. For inherited assets you hold directly, like stocks or a bank account, you report any income they generate (dividends, interest) on the appropriate lines of your return. Warnings and limitations: You will likely receive a separate federal Schedule K-1 (Form 1041) for your federal tax return. Ensure you use the information from the California Schedule K-1 (Form 541) for your California return, as the amounts may differ. If you do not receive a K-1 from the trustee or executor in a timely manner, you must contact them to request it. This is general information and does not constitute legal advice. For complex situations, especially those involving the sale of inherited assets or unclear trust terms, consult with a qualified California attorney or tax professional.