Property Tax Reassessment for Inherited Property in California: Proposition 19
California Proposition 19 (effective February 2021) significantly restricted property tax reassessment exclusions for inherited property. Under the current rules, the parent-child exclusion is only available if the inheriting child uses the property as their primary residence within one year. Investment properties, vacation homes, and properties where the heir does not take up residence are now fully reassessed at current market value.
Before Proposition 19, children who inherited a parent's home could keep the parent's low property tax base, called the Proposition 13 base year value, regardless of whether they moved in. A child inheriting a Malibu beach house assessed at $150,000 (worth $3 million) could keep paying property taxes on the $150,000 assessed value even if they used it as a vacation rental. This created a significant financial incentive to hold inherited California property rather than sell it.
Proposition 19 eliminated this benefit for properties not used as the heir's primary residence. Now, if a child inherits a parent's home and does not make it their primary residence within one year, the property is reassessed at its current fair market value. For highly appreciated California properties, this can mean a property tax increase of $10,000-$30,000 or more per year.
The primary residence exception under Prop 19 is also narrower than the old rules. Even if the child does move in, the exclusion is limited: the assessed value is the fair market value minus $1 million (as of 2023-2024). For properties worth significantly more than $1 million above the parent's assessed value, some reassessment occurs even when the child moves in.
The practical effect of Proposition 19 on estate property sales has been significant. Many heirs who previously would have kept an inherited property as a rental or investment now face substantially higher property tax costs. For properties where the heir does not intend to live there as a primary residence, the financial case for selling, while the stepped-up basis minimizes capital gains, has become much stronger.
If you inherit California real property and are considering whether to keep it or sell it, consult both a CPA (for the income tax implications of keeping vs. selling) and a property tax specialist or estate attorney (for the Proposition 19 reassessment implications). The interaction between the stepped-up basis benefit and the Proposition 19 reassessment is a key driver of the financial analysis in most California inherited property decisions.
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