Property Taxes on Inherited Property in California

Proposition 19 and the Parent-Child Exclusion After February 16, 2021

For transfers on or after February 16, 2021, Proposition 19's parent-child and grandparent-grandchild exclusion is governed by Rev. & Tax. Code section 63.2. The Board of Equalization's Proposition 19 page explains that the date of death is the date of change in ownership, so Propositions 58 and 193, the earlier rules, apply to deaths on or before February 15, 2021, and Proposition 19 applies to deaths on or after February 16, 2021.

Under Rev. & Tax. Code section 63.2, a transfer of real property between parents and children is not a change in ownership, for which a claim is filed, when it meets these conditions:

• The parent's principal residence. The property was the principal residence of the transferor, the parent who owned and lived in it.
• The heir's principal residence. It becomes the transferee's principal residence within one year of the transfer.
• The homeowners' exemption. The heir files for the homeowners' or disabled veterans' exemption within a year of the transfer.

The same exclusion covers a family farm, a separate category the statute defines by agricultural use. It is not automatic for every inherited property. The Board's Proposition 19 page states that a rental home transferred between parents and children would not qualify.

The statute's definition of "children" includes stepchildren, sons- and daughters-in-law and certain adopted and foster children, under the conditions it sets. Grandchildren qualify only if all of the parents, other than stepparents, of that grandchild who qualify as children of the grandparents are deceased as of the date of the transfer.

A trust does not change the analysis. Rev. & Tax. Code section 63.2 says a "transfer" includes a transfer of present beneficial ownership from an eligible transferor to an eligible transferee through an inter vivos or testamentary trust, so the same conditions apply to a home that passes through a parent's living trust.

There is also a value limit. The exclusion protects the parent's taxable value only up to that value plus one million dollars, as the statute states it; the Board's Proposition 19 Fact Sheet says the figure is adjusted every other year and lists $1,044,586 for transfers from February 16, 2025, through February 15, 2027. How that works is explained in the section on reassessment below.

Filing a Claim: The Reassessment Exclusion Application

The exclusion has to be claimed. Rev. & Tax. Code section 63.2 says it is not allowed unless a claim is filed with the assessor. The Board's fact sheet names the form for a parent-child transfer as BOE-19-P, and BOE-19-G for a grandparent-grandchild transfer, each submitted to the assessor of the county where the property is located.

The claim deadline in Rev. & Tax. Code section 63.2 is the earliest of three years after the date of the transfer, before the property is transferred to a third party, or before an eligible transferee stops occupying the residence. A claim is also timely if filed within six months after the assessor mails a notice of supplemental or escape assessment issued because of the transfer. If the property has not been transferred to a third party, a late claim can still be considered, but any exclusion granted applies from the lien date of the assessment year in which the claim is filed.

Living in the home is the heart of the claim. In practice that means the heir moves in and makes it their principal place of residence, the dwelling the homeowners' exemption is built around. The fact sheet says that if the homeowners' or disabled veterans' exemption claim is filed after one year, the exclusion begins the year that claim is filed rather than from the date of the transfer.

The law is statewide, but each county assessor processes the claims for property in that county. For a family juggling a probate, a trust or siblings in other states, the assessor's office is the place to confirm what it has on file and what it still needs.

When Inherited Property Is Reassessed: Rentals, Second Homes, and Partial Exclusions

When no heir moves in, the exclusion does not apply and the property is reassessed at its full cash value as of the change in ownership. The Board's fact sheet notes that where the transferor died, the date of death is considered the date of transfer, so that is the valuation date.

A rental does not qualify, as the Board says plainly. A vacation home or second home generally does not either, because Rev. & Tax. Code section 63.2 requires that the property have been the parent's principal residence; a house the parent used only part of the year usually was not.

A partial exclusion happens when the house is worth more than the value limit allows. Under Rev. & Tax. Code section 63.2, if the fair market value at the transfer is equal to or more than the parent's taxable value plus the limit, the new taxable value is the parent's taxable value plus the amount by which market value exceeds that sum. The result works out to the market value less the limit amount. Below that line, the parent's taxable value carries over in full.

Siblings who inherit together raise their own questions. The fact sheet says that when two or more children inherit and one moves out while another moves in, a new claim must be filed within one year of the previous child's move-out date. How the exclusion applies when one heir lives in the house and others do not depends on the ownership shares and the facts, and the county assessor's office is the place that answers it.

Moving out later ends the exclusion. The Board's Proposition 19 page says the property then receives a new taxable value, the fair market value on the date of inheritance adjusted for inflation, enrolled as of the lien date after the move. Either way, reassessment changes the annual bill going forward rather than imposing a single charge at inheritance.

The Stepped-Up Basis and Capital Gains When You Sell

Property tax and income tax are separate questions, and families often blur them. Property tax is the yearly bill from the county. Income tax arises when the house is sold, and turns on "basis," the figure a gain or loss is measured from.

Under 26 U.S.C. § 1014(a), the basis of property acquired from a decedent is generally the fair market value at the date of death. The statute gives alternatives: the value at the alternate valuation date where that election is made under section 2032, the value determined under section 2032A where that election is made, or, to the extent the section 2031(c) exclusion applies, the decedent's basis.

In plain words, the growth in value during the parent's lifetime is generally not counted as the heir's gain. If a parent paid little for a house now worth much more, the heir's starting point is generally the date-of-death value, not the old purchase price. The basis is fixed by that rule; a rise or fall in value after the death does not change it. Any gain on a later sale is generally measured as the difference between the sale result and that basis, which is why a date-of-death appraisal matters. In a probate, Probate Code section 8902 has the personal representative deliver the inventory to the probate referee, who appraises the property the personal representative does not.

Whether a particular sale produces a gain or a loss, and what follows from it, is a question a CPA, an enrolled agent or a tax attorney reviews for the specific estate.

Property Taxes When You Sell Inherited Property

A sale changes the tax picture again, so it helps to know what carries over and what does not. Under Rev. & Tax. Code section 2192, property tax liens generally attach as of 12:01 a.m. on January 1 preceding the fiscal year the taxes are levied for. Property taxes are commonly divided between seller and buyer in escrow according to the part of the tax year each owns the house, and unpaid taxes are paid from the seller's proceeds at closing.

Any exclusion stays with the family. The buyer's purchase is a change in ownership under Rev. & Tax. Code section 60, and section 75.10 has the assessor revalue the property at full cash value as of the buyer's purchase. If the house was already reassessed when the heirs inherited it, that higher value is the tax base until the sale.

Before any sale, someone has to hold the authority to sign. In a probate, the steps for selling inherited property during probate depend on the authority the court granted. In a trust, the trustee signs. Whoever the buyer is, those steps, the tax liens and the seller's legally required disclosures stay the same. Whether any disclosure exemption applies to an estate or trust sale is a question for the estate's or the trust's attorney.

The ways to sell each carry tradeoffs:

• A listing with a licensed agent. The house is exposed to the open market, usually after preparation and showings, and the seller pays a commission.
• A sale by the owner. The seller handles pricing, showings, negotiation and paperwork without an agent.
• A direct sale to a buyer paying cash. The house is sold in its present condition, and "as-is" describes what the buyer accepts.

A direct offer is often lower than an open-market price, because that buyer absorbs the repairs, the risk and the cost of reselling. In return the seller gets less preparation, fewer showings and less reliance on a buyer's loan. Families weighing selling a house that needs repairs feel that tradeoff most. Comparing written offers and estimated net proceeds, meaning the price less commissions, repairs, carrying costs, loan payoffs and closing costs, is how a family tells which fits; cash offer versus listing is that same comparison laid side by side.