If you have inherited a house in California, you can usually keep it, rent it or sell it. Who can sign a sale depends on how the property passed: through probate, through a trust, or by a deed or title that transfers at death. Property tax and income tax rules then shape what keeping or selling costs.

Most people facing an inherited California house come to it in the middle of grief. Often they live hours or states away, and brothers, sisters or a surviving parent are waiting to hear what happens next. The questions arrive all at once: whether the house can be sold yet, who has to sign, whether the property tax bill will jump, and whether a sale will be taxed. This page walks through those questions in the order a sale raises them. It starts with what inheriting real estate means in California, then covers taxes, authority to sell, and the ways a sale can happen.

What Inheriting California Real Property Actually Means

Inheriting a house in California rarely means the house is simply yours the next morning. Usually a document or a court order has to be in place before anyone can sell it.

Several roles come up, and they are not interchangeable:

  • An heir is a person who receives property under the law when there is no will, or a person entitled to inherit.
  • A beneficiary is a person named to receive property under a will, a trust or a transfer on death deed.
  • An executor is the person a will names to manage the estate through probate.
  • An administrator is the person the probate court appoints when there is no will, or when the named executor cannot serve.
  • A personal representative is the general term for either an executor or an administrator.
  • A trustee manages property held in a trust. A successor trustee takes over that job when the original trustee, often the person who died, can no longer serve.

California's Property Tax Rules After an Inheritance

For an inheritance on or after February 16, 2021, the property tax question turns on Rev. & Tax. Code section 63.2, the rule voters adopted through Proposition 19. Normally a transfer is a "change in ownership," and a change in ownership lets the county assessor reassess the property to its current market value. That can raise the tax bill sharply on a house owned for decades.

Section 63.2 excludes, in whole or in part, a transfer between parents and children from that reassessment when a claim is filed. It also covers a transfer between grandparents and grandchildren, but only if all of the grandchild's parents who are the grandparents' children, other than stepparents, have died as of the transfer. For a home, the conditions in the statute include:

  • Principal residence. The home must have been the transferor's principal residence. It must also become the transferee's principal residence within one year of the transfer.
  • Exemption filing. The transferee files for the homeowners' or disabled veterans' exemption within a year of the transfer. The exclusion is removed when the transferee no longer qualifies for either exemption.
  • Value limit. Value above the existing taxable value plus a set dollar amount is added to the new taxable value. That amount is adjusted over time, and the county assessor's office can give the current figure.
  • A claim. The exclusion is not allowed unless a claim is filed with the assessor.

The claim is generally due within three years after the transfer, or before the property is transferred to a third party, or before an eligible transferee stops living in the house, whichever is earlier. It is also timely if filed within six months after the mailing of a notice of supplemental or escape assessment. A late claim may still be considered if the property has not gone to a third party, with any exclusion applying from the lien date of the year it is filed.

When the heir does not move in, these conditions are not met and the exclusion generally does not apply, so the assessor may reassess. The county assessor's office handles claims and questions about a particular parcel.

The Step-Up in Basis and Federal Income Tax on a Sale

Basis is the starting figure used to measure gain or loss when property is sold. The IRS's Publication 551, Basis of Assets describes it as "the amount of your investment in property for tax purposes." For inherited property, the rule is in 26 U.S.C. § 1014. Under subsection (a), except as otherwise provided, the basis of property acquired from a decedent is:

"(1) the fair market value of the property at the date of the decedent's death, (2) in the case of an election under section 2032, its value at the applicable valuation date prescribed by such section, (3) in the case of an election under section 2032A, its value determined under such section, or (4) to the extent of the applicability of the exclusion described in section 2031(c), the basis in the hands of the decedent."

In plain words, an heir's basis is generally the date-of-death value, not what the parent paid years ago. This is often called a step-up in basis. If the house later sells for more than that basis, the difference may be taxable gain. If it sells for less, the difference may be a loss. Basis is fixed by the measure the statute names; it is not reset each time the market moves. IRS Publication 551 also notes that in community property states, including California, the whole community property generally takes a new basis when a spouse dies, if at least half was includible in the decedent's gross estate.

How Authority to Sell Is Established: Probate, Trusts, and Non-Probate Transfers

Each of the three transfer paths described earlier produces a different signer and a different set of papers. The person who signs the listing agreement or purchase contract has to be the person the law recognizes, and title companies check this before closing.

Probate. When the house is in the decedent's name alone and no other path applies, the probate court appoints a personal representative, either the executor or an administrator. That person's authority to sell comes from the court. Under the Independent Administration of Estates Act, the court may grant full or limited authority. With full authority, a personal representative can often sell after giving heirs and beneficiaries a notice of proposed action, without court confirmation, as long as no one objects. With limited authority, or when someone objects, a sale of the house generally needs the court's confirmation. The exact notice periods and bidding rules are in the Probate Code, and the estate's attorney can confirm what applies. An executor selling inherited property faces these steps whoever the buyer is.

Trust. When the house was held in a trust, the trustee or successor trustee generally can sell as the trust document allows, without probate for that property. Title companies typically ask to see the trust's relevant pages or a certification of it.

Non-probate transfers. Joint tenancy passes to the surviving joint tenant by right of survivorship, usually cleared of record by recording an affidavit of death. Community property with right of survivorship works in a similar way for spouses. A transfer on death deed passes the house to its named beneficiary, usually after recording an affidavit of death of the transferor.

The Choices When Selling Inherited California Real Estate

Once someone holds authority to sell, the method is a separate choice. There are three broad ways to sell, and each fits some situations better than others.

Listing with a licensed real estate agent. The agent prices, markets and shows the house to buyers on the open market. This often reaches the most buyers and can bring the highest price. In exchange, the seller usually pays a commission, may spend money on repairs and preparation, and carries the house through showings and a buyer's financing.

Selling without an agent. An owner, or the personal representative or trustee, can market the house directly. This can avoid a listing commission. It also puts the pricing, paperwork, negotiation and disclosures on the seller, often from a distance.

A direct sale to a buyer who pays cash and takes the house as it is. Because that buyer absorbs the repair work, the uncertainty and the cost of reselling, a direct offer is often lower than what the house might bring on the open market. What the seller gives up in price buys less preparation, fewer people walking through a parent's home, and less risk of a buyer's loan falling through.

Comparing written offers and estimated net proceeds is how a family tells which way fits. Net proceeds are the price less commissions, repairs, carrying costs, loan payoffs and closing costs, and the costs of selling inherited property vary by path.