California Unrealized Gains Tax: AB 259’s Thresholds and Why It Failed

California does not have an unrealized gains tax. The state imposes no annual tax on asset appreciation or accumulated net worth, and the most prominent proposal to create one, Assembly Bill 259, failed in committee and was filed with the Chief Clerk on February 1, 2024.¹ Its companion constitutional amendment, ACA 3, also stalled after being referred to the Revenue and Taxation Committee in March 2023 without advancing.² Neither bill has been reintroduced in the 2025–2026 session.

What AB 259 Would Have Taxed

Press coverage often called AB 259 an “unrealized gains tax,” but that label is loose. The bill was a wealth tax. It would have imposed an annual excise tax on a resident’s total worldwide net worth above a threshold, regardless of whether that wealth went up, down, or stayed flat during the year.³ A resident with $60 million in assets would have owed tax even in a year their portfolio lost value, because the tax hit the balance sheet, not the appreciation.

The bill described the levy as applying to “the activity of sustaining excessive accumulations of wealth,” and net worth would have been calculated using the same methodology as the federal estate tax: everything owned, minus debts.⁴ A true tax on unrealized gains would reach only paper profits. A wealth tax reaches the whole pile above the exemption, every year.

The Thresholds and Rates That Were Proposed

Starting with tax years beginning on or after January 1, 2026, AB 259 would have imposed a 1% annual excise tax on worldwide net worth above $50 million for most filers. A 0.5% surtax would have stacked on top for net worth above $1 billion, producing a combined 1.5% rate past that mark.³

Married taxpayers filing separately faced lower thresholds: the 1% bracket began at $25 million, and the combined 1.5% rate began at $500 million.⁴ None of these rates ever took effect.

What Would Have Counted as Taxable Wealth

Taxpayers above the exemption would have had to itemize assets across broad categories: publicly and privately traded stock, interests in partnerships and private equity and hedge funds, bonds, savings accounts, mutual funds, index funds, options and futures, art and collectibles, farm assets, offshore holdings, cash, deposits, and pension funds. Mortgage and non-mortgage debts would have been subtracted.³

One carve-out drew less attention than it deserved. Directly held real property was excluded from the net worth calculation, though taxpayers still had to list it.³ Someone whose wealth sat almost entirely in California real estate could have fallen below the threshold once property dropped out of the math. The likely reason for the carve-out: taxing land through a wealth tax rather than the existing property tax system raises its own constitutional problems.

What Would Have Happened If You Left California

The bill reached past current residents. It created a “wealth-tax resident” category that would have kept former Californians liable for a declining share of the tax after they moved. The formula used a fraction. The numerator started with days present in California during the exit year plus years of residence over the prior three tax years. The denominator was four. Each year after, the numerator dropped by one until it reached zero.⁴

In practical terms, a long-time resident who left California would have continued paying a shrinking fraction of the wealth tax for roughly three to four years after departure. Legal analysts flagged this trailing obligation as a possible due process problem, since the state would still be taxing someone who no longer lived there.

Why the Bill Didn’t Pass

AB 259 faced constitutional obstacles its drafters knew about. The U.S. Constitution requires that “direct taxes” be apportioned among the states by population, and a wealth tax almost certainly qualifies as a direct tax. The Supreme Court had an opportunity to clarify this in Moore v. United States, decided June 2024, and chose not to. The majority wrote that it did “not address the Government’s argument that a gain need not be realized to constitute income under the Constitution,” and noted that “a hypothetical unapportioned tax on an individual’s holdings or property (for example, on one’s wealth or net worth) might be considered a tax on property, not income.”⁵

AB 259 tried to work around this by labeling the levy an excise tax, adding a broad severability clause, and including a fallback apportionment formula if courts struck down the 100% assignment of the tax to California. Whether that scaffolding would have survived judicial review is unresolved.

The state constitution posed a separate hurdle. AB 259 was deliberately paired with ACA 3, a constitutional amendment requiring statewide voter approval before the wealth tax could operate.⁴ The drafters understood that without amending the state constitution, the tax likely could not stand. ACA 3 never got out of committee.

What’s Still Being Proposed

The idea hasn’t disappeared. A separate ballot initiative has been proposed for the 2026 election cycle that would levy a one-time 5% tax on individual net worth above $1 billion, with revenue directed to healthcare, education, and food assistance. Whether it qualifies for the ballot, and whether it would survive the same constitutional challenges that shadowed AB 259, remains to be seen.

Until something passes and clears those challenges, California residents owe no state tax on unrealized gains or on accumulated wealth. Appreciation on stocks, business interests, real estate, and other assets is taxed by California only when the gain is realized through a sale or other taxable event, under the state’s ordinary income tax rules.

1
CalMatters Digital Democracy. AB 259 Wealth Tax False Claims Act
2
CalMatters Digital Democracy. ACA 3 Wealth Tax Appropriation Limits
3
LegiScan. CA AB259 2023-2024 Regular Session Introduced
4
Franchise Tax Board. Bill Analysis AB 259
5
Supreme Court of the United States. Moore v. United States 22-800