When you inherit property in California, one of the first questions people ask is whether they owe an inheritance tax. California does not impose a state inheritance tax, and there is no federal inheritance tax either. What can apply instead is the federal estate tax, but that only affects estates above a very high threshold, so most heirs will never face it. The tax people usually need to worry about is the California property tax, which is reassessed when a home changes hands, including through inheritance.
A common follow-up is whether the property tax bill will jump after inheritance. Under Proposition 19, which took effect in 2021, a child who inherits a parent’s home can keep the parent’s lower tax base only if the child moves in and makes it their principal residence, and even then the exclusion is capped. If the home is not used as a primary residence, it is reassessed at market value, which can raise the annual property tax significantly. Inherited investment properties are generally reassessed as well.
People also ask about capital gains tax on inherited property in California. The key rule is the stepped-up basis. When you inherit property, its value is reset to the fair market value on the date of the owner’s death. If you later sell it for that amount, you owe little or no capital gain. California taxes capital gains as ordinary income, so the state rate can be as high as 13.3 percent for top earners, plus the federal rate.
Another frequent question is how long you must own the property before selling. There is no waiting period. You can sell right away, and the stepped-up basis still applies. The gain is calculated from the date-of-death value, not the price the deceased originally paid.
Many heirs wonder whether they must live in the inherited home to avoid taxes. Living there matters for the Proposition 19 property tax exclusion, not for capital gains. For capital gains, what matters is the value at death and the sale price.
Finally, people ask whether they need a formal appraisal. While not always legally required, getting a professional valuation as of the date of death is strongly recommended because it documents your basis and protects you if the IRS or California tax authorities ever question the numbers. Keeping records of improvements and sale costs also helps reduce any taxable gain.
A closer look is at step-up in basis CA.