What to Do When You Inherit a House in California, Part 4: Tax Implications

Will property taxes go up when I inherit a house in California? Does Prop 13 protect me against property tax increases? What did Prop 19 change about inheriting a house in California?

By Maya Bovshow, CEO, Trust Properties USA

One of the most common questions people ask after inheriting a house in Calfornia, is: “Am I going to owe taxes on this?”

Unfortunately, the answer is: “That depends on a complex number of factors, so you should consult a qualified California CPA.”

There’s a lot of confusion around property taxes, capital gains, and inheritance rules—especially in California, where voter-approved measures like Prop 13 and Prop 19 create unique outcomes. In this last blog in the series, I’ll hit the basics, remembering that you likely need solid advice from a CPA, possibly an attorney, and will want to consult specialist inheritance real estate agents like those here at Trust Properties USA.

What Is the Step-Up in Basis in Inherited Real Estate?

This is the most critical tax concept for inherited property—and the one most people don’t know about.

When you inherit a home, the IRS and California give you a “step-up in basis.” That means the value of the home is “reset” to its fair market value at the time of the previous owner’s death.

Let’s break that down:

• Suppose your parents bought a home in 1985 for $120,000.
• At the time of their death, the home is worth $800,000.
• If you inherit the home, your “basis” (the amount used to calculate capital gains tax from a sale at any time later) is now $800,000—not $120,000.

That’s a huge benefit. Why?

If you sell the home for around $800,000 shortly after inheriting it, you may owe little to no capital gains tax.

Bottom line: You can often sell an inherited home without owing significant taxes, as long as you sell fairly quickly.

Property Taxes on Inherited Homes In California: Will They Go Up? (Welcome to Prop 19)

California property taxes are governed by complex rules, and few could be more critical for inherited homes than Proposition 19, which went into effect in 2021. Under this confusing proposition, the rules for inherited property changed significantly.

Previously, parents could transfer homes to children without a tax reassessment—even for rental or vacation homes.

Now, under Prop 19:

• Only the primary residence of the parent can be transferred to a child without full reassessment, and only if:
  • The child also uses it as their primary residence.
  • The market value is within $1 million of the existing taxable value (with adjustments for inflation).
• Rental, second, or investment properties inherited from a parent or grandparent will now be reassessed at market value, resulting in a much higher property tax bill.

Example: If you inherit a rental home your parents bought for $200,000 and it’s now worth $1 million, the property tax bill could jump from ~$3,000/year to ~$12,000+/year.

This rule has caught many heirs off guard and often tips the scales toward selling rather than keeping the property, especially if the new tax burden makes the house unaffordable.

Bottom line: consult a CPA to help you understand your specific situation. Contact us here at Trust Properties USA to help you navigate these issues as you decide whether to sell.

Capital Gains Taxes When You Sell an Inherited Home

If you decide to sell the house—whether right away or after a few years—you may owe capital gains tax on any profit above your stepped-up basis. Here is a simplified view. Again, consult a CPA for the complete picture:

How It Works:

• Your capital gain = sale price – stepped-up basis – selling expenses.
• Selling expenses may include commissions, closing costs, and improvement costs.

What About the Home Sale Tax Exclusion?

Usually, homeowners can exclude up to $250,000 ($500,000 for married couples) in capital gains if they’ve lived in the home as their primary residence for at least 2 of the last 5 years.

If you move into the inherited home and live there for two years, you may qualify for that exclusion when you eventually sell.

Federal and California State Inheritance or Estate Taxes on an Inherited House

Good news: California does not have a state inheritance tax.

As for federal estate taxes, they only apply to very large estates.

• In 2025, the federal estate tax exemption is $13.61 million per person.
• That means, unless the total estate value exceeds that amount, no estate tax may be due.

And importantly, you don’t pay inheritance tax just for receiving a house.

If you’re inheriting a typical California home, taxes may only come into play later, when and if you sell.

Recap: What Taxes Should You Expect?

Tax rules can be overwhelming—especially when you’re trying to grieve, clean out a house, or make big decisions under pressure. We’ve guided countless families through these tax scenarios, working alongside CPAs and attorneys to help you make informed decisions.

Do I Need a California Trust & Probate Real Estate Broker like Trust Properties USA?

No matter what your situation looks like—clean or chaotic, simple or messy—Trust Properties USA can help you find a solution that works.

1. Fix and Sell Strategy for Inherited Homes

With our unique “Fix and Sell” Strategy, we front the costs to rehab your home into move-in condition. Trust Properties USA helps you maximize value and sell your home quicker and for more money than the average agent.

• We cover 100% of renovation costs upfront.
• No points, no interest, no liens.
• Professional project management.
• Licensed, bonded, and insured contractors.

2. Comprehensive Estate Services for Trust, Probate, and Inherited Homes in California

Our complete service offerings include:

• Foreclosure prevention and mortgage relief.
• Property security and protection.
• Hoarding cleanup and personal property management.
• Estate sales and valuable item identification.
• Eviction services.
• Probate and trust expertise.

3. No-Stress, No-Hassle Process

• We handle title, escrow, and legal coordination.
• You don’t pay us any upfront costs for renovations or services.
• We communicate clearly—no surprises, no games.
• All services are coordinated through our experienced team.

4. Local Knowledge, Statewide Service

• From Los Angeles to Sacramento, San Diego to San Jose, we operate all over California.
• We understand regional differences in housing, taxes, zoning, and buyer demand.
• Whether the home is a mid-century ranch in Orange County or a fixer in the Central Valley—or anywhere in the country—we’ve got you.

Call us today at (800) 579-4380 to speak with a compassionate, experienced professional, or contact us online to get started at your own pace. Behind every inherited house is a family—and we’re here for yours. Oh, and did you miss any part of this series? Here’s a link to Part 1, “First Steps”!

Best, Maya
Maya Bovshow, CEO, Trust Properties USA

Maximizing the equity your family took a lifetime to build.

If you are dealing with a property in probate or trust, call us today at 📞 1-800-579-4380