If you inherit property in California, you won’t pay a state inheritance tax or a state estate tax on it. The costs that do hit are a higher annual property tax bill under Proposition 19, and federal and California capital gains tax if you later sell. For estates above $15 million per person in 2026, federal estate tax can also apply, but that’s paid by the estate before you receive anything. For almost every heir, the property tax reassessment is the expense that matters most, and it’s the one with the tightest deadlines.
California Has No Inheritance or Estate Tax
California voters repealed the state’s inheritance and gift taxes in 1982 through Proposition 5, and no state-level estate tax has been reimposed since.1Ballotpedia. California Proposition 5, Gift and Inheritance Tax Initiative (June 1982) Roughly a dozen states plus the District of Columbia still charge one or the other. California doesn’t. Whatever the property is worth, the state won’t tax you for receiving it.
That’s the full extent of the good news on the tax-free front. Two real bills follow the inheritance: what you’ll pay every year to hold the property, and what you’ll owe if you sell.
Property Tax Reassessment Under Proposition 19
Proposition 19, effective for intergenerational transfers on or after February 16, 2021, rewrote how inherited California real estate is reassessed.2California State Board of Equalization. Proposition 19 The short version: under Proposition 13, a property’s assessed value is locked in when it changes hands and can rise by no more than 2% a year. Inheriting counts as a change of ownership, so the county resets the assessed value to current market value unless a Proposition 19 exclusion applies.
The gap can be enormous. A home a parent bought in 1985 for $200,000 might sit at an assessed value of around $440,000 in 2026 while being worth $1.5 million on the market. A full reassessment can triple or quadruple the annual property tax bill overnight.
The Primary Residence Exclusion
You can keep a version of your parent’s low tax basis only if you use the inherited home as your own primary residence. To qualify, you must move in and file for the Homeowners’ Exemption (or Disabled Veterans’ Exemption) within one year of the transfer date.2California State Board of Equalization. Proposition 19 File late and the exclusion applies only going forward from the filing date, not back to the transfer.3California State Board of Equalization. Homeowners’ Exemption
The protection is also capped. The amount shielded from reassessment equals the property’s existing Proposition 13 assessed value plus an inflation-adjusted exclusion. For transfers occurring between February 16, 2025, and February 15, 2027, that exclusion is $1,044,586.4California State Board of Equalization. BOE Adjusts the Proposition 19 $1 Million Intergenerational Transfer Exclusion Amount If the home’s fair market value is at or below the base plus $1,044,586, you keep the old basis entirely. If it’s above, only the excess gets added to the base.
Say the parent’s assessed value is $300,000 and current market value is $2,200,000. The protected ceiling is $1,344,586. Market value exceeds that by $855,414, so the new assessed value becomes $300,000 + $855,414 = $1,155,414. That’s a real increase, but far less than a full jump to $2,200,000.
The Family Farm Exclusion
The family farm exclusion follows the same value cap but doesn’t require you to live on the property. It applies to land under cultivation, used for pasture or grazing, or producing an agricultural commodity under California’s agricultural preservation statutes.5California State Board of Equalization. Proposition 19 Fact Sheet The same $1,044,586 exclusion amount applies through February 15, 2027.4California State Board of Equalization. BOE Adjusts the Proposition 19 $1 Million Intergenerational Transfer Exclusion Amount
Vacation Homes and Rentals Get Fully Reassessed
Before Proposition 19, parents could pass up to $1 million in assessed value of other real estate to their children without triggering reassessment. That exclusion is gone. Inherited vacation homes, rentals, and investment properties are now reassessed to full market value with no exception.2California State Board of Equalization. Proposition 19 A rental with a Proposition 13 base of $150,000 and a current value of $900,000 can see its annual property tax jump from roughly $1,500 to $9,000. Many heirs sell inherited rentals because they can’t carry the new bill.
How to File and When
To claim the primary residence or family farm exclusion, file Form BOE-19-P (parent-child transfers) or Form BOE-19-G (grandparent-grandchild transfers) with the county assessor where the property sits. The claim must be filed within three years of the transfer date and before the property is sold to a third party.5California State Board of Equalization. Proposition 19 Fact Sheet File late and you lose the retroactive benefit.
The grandparent-to-grandchild version has one extra requirement: the grandchild’s parent (the grandparent’s child) must be deceased at the time of transfer.5California State Board of Equalization. Proposition 19 Fact Sheet
The Sibling Buyout Trap
When siblings inherit a home together and one later buys out the others, the shares purchased from siblings are reassessed at market value. The parent-child exclusion doesn’t cover sibling-to-sibling transfers. The same problem hits a trust distribution that gives one child a property worth more than their share of the estate: the excess portion is treated as a purchase from the other beneficiaries, and that portion gets reassessed.6California State Board of Equalization. Property Tax Annotations – 625.0000 Parent-Child Transfer If keeping the low basis in the family matters, the estate plan needs to handle this before anyone dies.
Capital Gains Tax If You Sell
Sell the inherited property and you’ll owe federal and California income tax on the gain. The size of that gain is dramatically reduced by the stepped-up basis. Under Internal Revenue Code Section 1014, the property’s cost basis resets to fair market value on the decedent’s date of death, wiping out appreciation accumulated during their lifetime.7Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
Take a parent who bought a home for $100,000 in 1980. At death in 2026 it’s worth $1,500,000. Your basis becomes $1,500,000. Sell it a few months later for $1,550,000 and your taxable gain is $50,000, not $1,450,000.
Get a professional appraisal to document fair market value on the date of death. If the estate filed a federal estate tax return, the value on that return controls.8Internal Revenue Service. Basis of Assets Otherwise the appraisal is your proof if the IRS ever questions the gain.
Federal and California Rates
Federal long-term capital gains rates for 2026:
- 0% on taxable income up to $49,450 (single) or $98,900 (married filing jointly)
- 15% up to $545,500 (single) or $613,700 (married filing jointly)
- 20% above those thresholds
Inherited property automatically counts as long-term regardless of how quickly you sell.9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
California has no separate capital gains rate. Gains are taxed as ordinary income, with rates from 1% to 13.3% depending on total taxable income.10California Franchise Tax Board. Tax Calculator, Tables, and Rates Combined federal and state tax on a large gain from selling inherited California real estate can easily reach 30% or more.
The 3.8% Net Investment Income Tax
High-income heirs owe an additional 3.8% federal surtax on net investment income, including capital gains from real estate. It applies when modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).11Internal Revenue Service. Topic No. 559, Net Investment Income Tax A big gain on an inherited home can push you over those thresholds even if your normal income wouldn’t. Stacked with the 20% federal rate and California’s 13.3% top rate, the effective marginal rate on a large gain can approach 37%.
Community Property Double Step-Up for a Surviving Spouse
California’s community property rules give surviving spouses an unusually strong break. When one spouse dies, the entire community property asset (both halves) receives a stepped-up basis to fair market value.7Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent In common-law property states only the decedent’s half steps up.
A couple who bought their home for $200,000 that’s worth $1.6 million at the first death: the surviving spouse’s basis in the whole home resets to $1.6 million. Sell for $1.6 million and the taxable gain is zero. The property has to be characterized as community property to get this. Joint tenancy doesn’t automatically qualify. A revocable living trust with community property language, or title held as “community property with right of survivorship,” typically preserves the double step-up.
Inherited Rental Property Depreciation
If you inherit a rental the decedent had been depreciating, the stepped-up basis clears the depreciation slate. You aren’t on the hook for recapturing depreciation the decedent claimed. Your depreciable basis starts fresh at fair market value on the date of death, and you begin a new depreciation schedule from there.
Properties Held in a Trust or LLC
Moving a home into a revocable living trust during the owner’s lifetime doesn’t trigger reassessment. The trust is treated as an extension of the owner for property tax purposes.12California State Board of Equalization. Property Tax Rule 462.160 – Change in Ownership – Trusts Reassessment happens when the trust becomes irrevocable (usually at the owner’s death) and property passes to beneficiaries. The same Proposition 19 rules then apply.
LLCs and other legal entities work differently. A change in control (one person or entity acquiring more than 50% of the ownership interests) triggers reassessment of all real property the entity owns. Even without a change in control, cumulative transfers of more than 50% of the original owners’ interests trigger reassessment.13California State Board of Equalization. Legal Entity Ownership Program (LEOP) – Definition of Change in Ownership Any transfer that crosses those thresholds must be reported to the Board of Equalization on Form BOE-100-B within 90 days.
Federal Estate Tax
Federal estate tax is paid by the estate itself before assets are distributed, not by heirs. For decedents dying in 2026, the exclusion is $15,000,000 per individual, with a 40% rate on amounts above that. The One, Big, Beautiful Bill, signed July 4, 2025, made the $15 million exclusion permanent and indexed it for inflation, canceling the scheduled sunset that would have cut it roughly in half.14Internal Revenue Service. What’s New – Estate and Gift Tax Estates above the threshold file Form 706 with the IRS.15IRS.gov. Instructions for Form 706 At $15 million per person, the great majority of California estates, even those holding valuable real estate, aren’t required to file.