North County San Diego
I inherited my parent's house in California. Keep, rent or sell?
One of these decisions has a deadline that starts the day your parent died, and missing it is permanent.
One of these decisions has a deadline that starts the day your parent died, and missing it is permanent.
There are three separate questions here, and two of them get merged together constantly even though they have nothing to do with each other. The property tax your parent paid, the tax basis you inherit, and what you actually want from the house are governed by different rules and have different deadlines.
Only one of them is urgent. If you want to keep your parent's low property tax, you have to move into the home as your own principal residence within one year of the death and file for the homeowners' exemption in that same year. There are no exceptions and it cannot be fixed afterwards.
The tax basis is the opposite. It resets to the market value on the date of death automatically, with no form to file, no deadline, and no requirement that you live anywhere. That is why selling promptly usually produces almost no capital gains tax.
Before February 2021, a parent could pass their home to a child and the child simply kept the parent's assessed value. It did not matter whether the child lived there, rented it out, or left it empty. On a house held for forty years that was frequently the most valuable thing in the estate.
That rule ended. Proposition 19 replaced it with something much narrower, and it applies to every death on or after February 16, 2021.
The old rule also covered rentals, second homes and commercial property up to a limit. That is gone entirely. Only the home your parent actually lived in can qualify.
It must become your own principal residence within one year of the transfer, and you must claim the homeowners' exemption within that same year. The Board of Equalization states there are no exceptions.
Even when you qualify, the benefit is capped. Above the ceiling, part of the value is reassessed.
Renting it out does not qualify. Leaving it empty does not qualify. Using it as a second home does not qualify. If your parent's assessed value was $180,000 and the house is worth $1.4 million, the property tax bill goes from roughly two thousand dollars a year to something in the region of fifteen thousand.
That figure is illustrative. California's base rate is 1% of assessed value plus local voter approved debt and direct assessments, which vary by district.
You will read that Proposition 19 lets a child inherit about a million dollars of value tax free. That is not what it does, and the misunderstanding runs in both directions: some people think they are protected when they are not, and others sell a house they could have kept cheaply.
The allowance is added to your parent's assessed value to create a ceiling. Only the amount by which the market value exceeds that ceiling gets added to your assessment.
Not the market value. The number on the tax bill, built up from whatever they paid decades ago plus the small annual increases Proposition 13 allows.
$300,000 plus $1,044,586 gives a ceiling of $1,344,586.
At $1,300,000 the house is under the ceiling, so your assessed value stays at $300,000 and nothing changes. At $2,500,000 the excess is $1,155,414, and that gets added, so your new assessed value is $1,455,414.
California Constitution article XIII A section 2.1(c)(1) and Revenue and Taxation Code section 63.2(d). The Board of Equalization publishes a worked example in Publication 801.
Two things follow. It is a partial reassessment, not all or nothing, so a very valuable house still keeps part of the benefit. And a modest house usually keeps all of it, which is why moving in can be worth far more than people assume.
The allowance is $1,044,586 for transfers from February 16, 2025 through February 15, 2027. It is adjusted every other February against the Federal Housing Finance Agency's House Price Index for California, not the consumer price index, so it moves with California house prices.
The next adjustment is due February 16, 2027. The Board of Equalization has not published that figure yet and historically announces it after the date it takes effect, so anyone quoting a 2027 number today is guessing. Anyone still quoting a flat one million dollars is two cycles out of date.
This is the single most useful thing on this page, because conflating the two leads people to make expensive decisions for no reason.
So a child who never moves in and sells the house six months later pays reassessed property tax for those six months and owes essentially nothing in capital gains tax, because the basis equals the date of death value and the house has barely moved since.
And a child who does move in and keeps the low assessment still gets the full step up. Claiming one does not cost you the other. They are not a trade.
Usually the cleanest. Your basis is the date of death value, so selling within a year or two typically produces little or no taxable gain. Selling costs come out of the proceeds and the money becomes diversified. You lose the low assessment, but if you were never going to live there, you never had it.
The only path that keeps your parent's property tax, and the one with the one year deadline. Worth real money on a long held home. It also starts your own clock for the primary residence exclusion, which shelters up to $250,000 of future gain, or $500,000 for a married couple, after two years of ownership and occupancy.
The path people drift into, and the one with the most hidden complexity. It forfeits the property tax exclusion outright, and it starts a depreciation obligation that follows you to the eventual sale.
You depreciate residential rental property over 27.5 years whether or not you claim it, and when you sell, the gain attributable to depreciation is taxed at a rate of up to 25%. Not claiming it does not avoid the recapture. It simply means you paid for a deduction you never took.
There is a second trap behind it. If you rent for several years, then move in for two and sell, the primary residence exclusion cannot shelter the depreciation portion. That gain is taxable regardless.
None of this makes renting wrong. It makes renting a decision that should be made deliberately, with the numbers in front of you, rather than by leaving a tenant in place because nobody wanted to deal with it.
San Diego County asks for a change in ownership statement, form BOE-502-D, within 150 days of the date of death.
Form BOE-266, filed with the county assessor. Miss this and any relief you get later is prospective only.
Form BOE-19-P. But it is the earliest of three years, the date you sell to someone else, or the date you stop living there. It is not a flat three years.
If you still own the home, a late claim gives relief going forward from the year you file. There are no refunds for the years in between, so a two year delay means two years of reassessed property tax you do not get back. If the house has already gone to a third party, the exclusion is gone for good.
Revenue and Taxation Code section 63.2(f). The exclusion is never automatic. The San Diego County Assessor states plainly that failing to file results in reassessment.
The exclusion attaches to a transferee who makes the home their principal residence. If three of you inherit and none of you moves in, nobody gets it. If one of you moves in, the rules follow that person.
That creates a real conversation. The sibling who moves in is receiving something the others are not, and it has a value that can be estimated fairly precisely. Families who work that out in advance tend to do better than families who discover it on a tax bill.
The exclusion is removed as of the date that person is no longer eligible for the homeowners' exemption. If a different sibling then moves in, a new claim is required within one year of the first one leaving. It does not carry across on its own.
If both your parents are alive, there is one thing worth checking now, because it is worth a great deal and the window closes at the first death.
When a married couple in California holds a home as community property, the whole house takes a new basis at the market value on the first death. Both halves. When the same couple holds it as joint tenants, only the half belonging to the one who died steps up. The survivor keeps their original basis on their half.
A house bought for $90,000 and worth $1,200,000 at the first death. Held as community property, the basis becomes $1,200,000. Held in joint tenancy, it becomes $645,000. On an eventual sale that difference is more than half a million dollars of gain, taxed federally and again by California, which treats capital gains as ordinary income.
Internal Revenue Code section 1014(b)(6), and the joint tenancy example in IRS Publication 523. California also offers community property with right of survivorship, which preserves the double step up and avoids probate.
Plenty of older California couples hold title as joint tenants because a title company defaulted to it decades ago and nobody revisited it. It is worth ten minutes to look at the deed. After the first death it is too late.
The line only matters against your own figures. Our planning tool projects your income year by year, so you can see which years sit under it, which do not, and what it costs either way.
Worth connecting to what you just read: the year you claim Social Security changes where your conversion ceilings sit. A larger benefit is more income. Half of it counts toward the threshold that determines how much of your Social Security is taxable. Starting earlier means a smaller benefit but more years of it, and usually more pressure on your IRA in the meantime. We cover that in detail on do I pay taxes on Social Security?
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Only if you make it your own principal residence within one year of the death and claim the homeowners' exemption within that same year. Proposition 19 changed this for every death on or after February 16, 2021. If you rent the home, leave it empty, or use it as a second home, it is reassessed at full market value.
It is not an amount of value that passes tax free. The allowance, currently $1,044,586 for transfers through February 15, 2027, is added to your parent's assessed value to create a ceiling. Only the amount by which the market value exceeds that ceiling is added to your assessment. A home assessed at $300,000 and worth $1,300,000 produces no increase at all.
Usually very little, if you sell reasonably soon. The basis resets to the market value on the date of death, so only appreciation after the death is taxable. This happens automatically with no form to file and regardless of whether you ever live in the home. It is completely separate from the property tax rules.
Two deadlines, and the tighter one controls. The homeowners' exemption must be claimed within one year of the transfer, with no exceptions. The exclusion claim on form BOE-19-P is due by the earliest of three years after the transfer, the date you transfer the home to someone else, or the date you stop occupying it. San Diego County also asks for a change in ownership statement within 150 days of the death.
If you still own the home, relief applies going forward from the year you file, with no refunds for the years you were assessed at the higher value. If the property has already been sold to a third party, the exclusion is lost permanently. The exclusion is never applied automatically; failing to file results in reassessment.
It is a legitimate choice but it forfeits the property tax exclusion, since the home would not be your principal residence. It also starts depreciation, which is not optional: the gain attributable to depreciation is taxed at up to 25% when you sell whether or not you ever claimed the deduction. Moving in later for two years does not shelter that portion.
Yes. The exclusion requires only that you have owned and used the home as your principal residence for two of the five years before the sale. There is no requirement that you bought it. In practice it rarely matters for an heir who sells promptly, because the step up in basis has already removed most of the gain. It matters if you hold the home for years while it appreciates.
Significantly, and only before the first death. In California, a home held as community property takes a new basis at full market value on the first spouse's death, both halves. A home held in joint tenancy steps up only the deceased spouse's half. On a long held California home that difference is frequently hundreds of thousands of dollars of future taxable gain, and it cannot be corrected after the first death.