Inheriting a home in California can feel like a blessing and a burden at the same time. There’s the emotional weight of losing a loved one, combined with the sudden responsibility of managing a property — often one you don’t live in and may not want to keep.
Then the tax questions start. How much will I owe in property taxes? What about capital gains? Did Prop 19 change everything?
The short answer: yes, Prop 19 significantly changed the rules for inherited property in California. This guide breaks down what you need to know — in plain language, not legalese — so you can make an informed decision about what to do with the home.
What Is Prop 19 and Why Does It Matter?
Proposition 19 went into effect on February 16, 2021, and it fundamentally changed how inherited property is taxed in California.
Before Prop 19 (Under Prop 58/193)
Under the old rules, children (and grandchildren, in some cases) could inherit a parent’s home and keep the parent’s low property tax base — regardless of whether they moved into the property. This was a massive benefit. A home purchased in 1985 with a tax assessment of $150,000 could be inherited and kept at that same low assessment, even if the home was now worth $900,000.
This applied to:
- A primary residence of any value
- Up to $1 million in other real property (assessed value, not market value)
Thousands of California families used this to keep inherited homes as rentals or second homes while paying property taxes based on what their parents originally paid.
After Prop 19
Prop 19 eliminated most of those benefits. Now, the inherited property tax exclusion only applies if the heir moves into the home as their primary residence — and even then, there are limits.
Here’s how it works:
- The heir must file for the homeowner’s exemption within one year of the transfer (or the date of death)
- The property must become the heir’s primary residence
- If the current market value exceeds the assessed value by more than $1 million, the tax base is adjusted upward (though not to full market value)
If the heir does not move into the home — if they want to rent it out or sell it — the property gets reassessed to current market value. That means the property tax bill could jump from $2,000/year to $10,000/year or more, depending on location.
The Property Tax Impact: Real Numbers
Let’s say your parents bought a home in 1990 for $200,000 in a Los Angeles suburb. The current assessed value (with the 2% annual cap under Prop 13) might be around $310,000. But the home’s current market value is $850,000.
If you move in as your primary residence:
- The new assessed value could be approximately $310,000 + $1,000,000 = stays at $310,000 (since the gap is under $1M)
- Your property taxes stay roughly the same as your parents were paying
If you don’t move in (rental, vacant, or selling later):
- The property is reassessed at $850,000
- Annual property taxes jump to approximately $10,200/year (at California’s ~1.2% effective rate)
- That’s an increase of over $6,000/year compared to the inherited base
This reassessment happens regardless of whether you sell. Simply inheriting the property and not moving in triggers it.
Capital Gains Tax on Inherited Property
Here’s the one piece of genuinely good news: inherited property receives a step-up in basis.
What “Step-Up in Basis” Means
When you inherit a home, the IRS treats your cost basis as the fair market value on the date of death — not what the original owner paid for it.
If your parent bought the home for $200,000 and it was worth $850,000 when they passed, your basis is $850,000. If you sell it for $860,000, your taxable capital gain is only $10,000 — not $660,000.
This applies to both federal and California state capital gains taxes.
When Capital Gains Become a Problem
The step-up happens at the date of death. If you hold the property and it appreciates further, that additional appreciation is taxable when you sell.
If you inherit a home worth $850,000 and sell it two years later for $920,000, you’d owe capital gains on the $70,000 difference. At California’s top rate (13.3% state + federal), that can add up.
The takeaway: Selling relatively soon after inheriting — while the value is close to the stepped-up basis — minimizes your capital gains exposure.
Exclusions That May Apply
If you move into the inherited home and live in it for at least two of the five years before selling, you may qualify for the primary residence exclusion: up to $250,000 in gains excluded ($500,000 for married couples filing jointly). This is a powerful tax benefit, but it requires actually living there.
Your Options for an Inherited Property
Option 1: Move In and Keep It
Best if you actually want to live there. You preserve the Prop 19 tax base (if the gap is under $1M), and you start the clock on the primary residence capital gains exclusion.
Downside: You need to actually relocate. If you own another home, you may need to sell it or convert it to a rental.
Option 2: Rent It Out
You can keep the property as a rental, but under Prop 19, it will be reassessed to current market value. Run the numbers carefully — the increased property taxes, plus maintenance, insurance, and management costs, may eat into rental income significantly.
You’ll also owe capital gains when you eventually sell, calculated from the stepped-up basis at date of death.
Option 3: List It with a Real Estate Agent
If the home is in good condition and you have time, listing on the open market typically gets you the highest gross price. Budget 3-5 months for the process, plus 5-6% in agent commissions, closing costs, and potential repair expenses.
Option 4: Sell for Cash
A cash sale is often the best fit for inherited properties because:
- Speed: Close in as little as 7-14 days — important if you’re paying carrying costs on a home you don’t live in
- As-is condition: No repairs, no staging, no cleaning out decades of belongings before listing
- Simplicity: Especially valuable when multiple heirs are involved and everyone wants to move on
- Tax timing: Selling soon preserves the step-up in basis and minimizes capital gains
Many families inherit homes that need significant work — deferred maintenance, outdated systems, or general wear from years of occupancy. The cost to bring these homes to listing condition can run $30,000-$80,000+. A cash buyer takes the home as-is and factors repairs into their offer.
What About Multiple Heirs?
When a property is inherited by multiple siblings or family members, things get complicated. Everyone needs to agree on whether to keep, rent, or sell. If one heir wants to buy out the others, you need an appraisal and a fair process.
Cash sales simplify multi-heir situations because:
- The transaction is fast, reducing the window for disagreements
- The proceeds are clean and easy to split
- No one needs to manage repairs or a listing process
- Title companies handle the distribution
If heirs can’t agree, a court can order a partition sale — but that’s expensive, slow, and no one wins. A voluntary sale is almost always the better path.
Probate vs. Trust: Does It Matter for Taxes?
For property taxes and capital gains: The tax treatment is essentially the same whether the property transfers through probate or a living trust. The step-up in basis applies either way. The Prop 19 reassessment rules apply either way.
For timeline and process: Trusts are significantly faster. Property held in a trust can be transferred to heirs without court involvement. Probate in California typically takes 12-18 months and involves court filings, notices to creditors, and potential hearings.
If the property is in probate and you want to sell, you may need court confirmation of the sale — which adds time and uncertainty. Some sales during probate are exempt from court confirmation under the Independent Administration of Estates Act (IAEA), but this depends on the grant of authority in the probate filing.
Learn more about selling a property during probate or selling an inherited home quickly.
Common Mistakes to Avoid
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Waiting too long to decide. Every month you hold an inherited property costs money — property taxes, insurance, utilities, maintenance. And if the property is vacant, you risk vandalism, squatters, or code violations.
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Not filing the homeowner’s exemption in time. If you plan to move in, you must file within one year. Miss the deadline and you lose the Prop 19 benefit permanently for that transfer.
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Ignoring the step-up basis. Some heirs don’t realize they have a stepped-up basis and overpay on capital gains. Get a date-of-death appraisal to document the fair market value.
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Assuming you can keep the old tax base without moving in. This was true before Prop 19. It’s not anymore. If you’re not moving in, plan for the reassessment.
How SHH Buys Homes Helps with Inherited Properties
We work with families throughout Southern California — Los Angeles, San Bernardino, Riverside, and Orange County — who’ve inherited homes and need a clean, fast path forward.
We handle:
- Homes in any condition, including those with decades of deferred maintenance
- Properties still in probate (we work with your attorney and the court timeline)
- Multi-heir situations where everyone needs to agree and move on
- Tenanted properties where the inherited home has a renter in place
Our process: we review the property, provide a written cash offer within 24 hours, and close on your timeline — as fast as 7 days or as slow as you need.
Visit our homepage to get started, or learn about our process for inherited properties.
Get your free cash offer from SHH Buys Homes. Inherited a property in Southern California and not sure what to do? We’ll give you an honest assessment — even if selling to us isn’t the right move. Fill out the form below or call us at (626) 414-4859.