Do I Pay Property Tax on Inherited Property in California?

Inheriting property in California does not trigger a state-level inheritance or estate tax, as California does not impose one. The primary financial consideration for an heir is the potential reassessment of annual property taxes. When property changes hands, it constitutes a “change in ownership,” an event that prompts the local county assessor to re-evaluate the property’s value for tax purposes, which can lead to a significant increase in the annual tax bill.

Recent changes in state law, specifically Proposition 19, have substantially reshaped the rules for inherited properties. These new regulations have narrowed the circumstances under which an heir can retain the previous owner’s lower property tax assessment. For heirs, the focus is not on a one-time inheritance tax, but on the ongoing, yearly property tax obligation.

Property Tax Reassessment Upon Inheritance

In California, the transfer of real estate upon an owner’s death is legally defined as a “change in ownership,” which triggers a county assessor to re-evaluate the property. The property is reassessed to its full current fair market value as of the date of the transfer, which is typically the date of the previous owner’s death. This new market value becomes the property’s “base year value” for future tax calculations.

This reassessment mechanism is significant because of Proposition 13. This measure limits the annual increase on a property’s assessed value to a maximum of two percent per year, as long as the property does not change ownership. Homeowners who have owned their property for many years often have a tax base far below the current market value. A change in ownership eliminates this low valuation, meaning an heir could inherit a home with a low tax bill and see that bill increase dramatically in the following year.

The Parent-Child and Grandparent-Grandchild Exclusion

The rules for avoiding property tax reassessment on an inherited home are governed by Proposition 19, which took effect on February 16, 2021. This law narrowed previous exclusions and created strict requirements for heirs. The primary avenue for relief is the parent-child and grandparent-grandchild exclusion, but it applies only under specific conditions. For the grandparent-grandchild exclusion to be applicable, the parents of the grandchild must be deceased.

A requirement of the new law is that the inherited property must have been the principal residence of the parent or grandparent before the transfer. Furthermore, the property must become the principal residence of the child or grandchild within one year of the inheritance. To meet this standard, the heir must physically occupy the home and file for the Homeowners’ Exemption or the Disabled Veterans’ Exemption within that one-year timeframe. This means the exclusion is not available for properties that the heir intends to use as a second home or rental.

Proposition 19 also introduced a value limit on the exclusion. An heir can retain the transferor’s original taxable value only if the property’s fair market value at the time of transfer is not more than the original value plus an excludable amount, currently $1,044,586. If the market value exceeds this threshold, the exclusion is only partial. For example, if a parent’s home has a taxable value of $400,000 but a current market value of $1.8 million, the excludable amount is $1,444,586 ($400,000 + $1,044,586). Since the market value of $1.8 million exceeds this by $355,414, that excess amount is added to the original taxable value, making the new assessed value $755,414.

This framework eliminated the prior exclusion that allowed parents to transfer a primary residence of any value plus other properties without reassessment. Under the current rules, only the principal family home qualifies, and only if the heir also makes it their principal home. Any other type of inherited real estate, such as commercial buildings or rental properties, will be fully reassessed to current market value upon transfer.

Information and Forms for Claiming the Exclusion

To claim the parent-child or grandparent-grandchild exclusion, an heir must collect specific information. This includes the full legal name of the deceased transferor, their date of death, the legal relationship to the heir, and the property’s Assessor’s Parcel Number (APN), which can be found on any tax bill or property deed.

The heir will need to provide evidence that the home was the decedent’s primary residence and that it has become their own. This can be substantiated with records showing a filed Homeowners’ Exemption for the decedent and subsequently for the heir. Utility bills, driver’s license addresses, and voter registration records can also serve as supporting evidence.

The official forms for this exclusion are Form BOE-19-P for a parent-child transfer and Form BOE-19-G for grandparents and grandchildren. These forms are available from the county assessor’s office. When completing the form, the heir will attest under penalty of perjury that all requirements are met. A Preliminary Change of Ownership Report (PCOR) is often filed with the deed that transfers the property title.

The Filing Process and Deadlines

The completed application package must be filed with the county assessor’s office for the county in which the inherited property is situated. Most assessor’s offices accept filings via mail or in-person delivery.

There are specific time limits for filing a claim for this exclusion. An heir has up to three years from the date of the property transfer, or before the property is sold to a third party, whichever comes first. A shorter deadline may be imposed if the county assessor sends a notice of potential eligibility; in such cases, the recipient has a limited window, often 60 days, to respond. To ensure the full benefit of the exclusion from the date of inheritance, the claim should be filed within one year of the transfer.

After the claim is submitted, the assessor’s office will review the application to determine if the transfer qualifies. If the claim is approved, the property’s assessed value will be adjusted to reflect the exclusion. If the claim is denied or filed late, the property will be reassessed at its current market value, and the assessor will issue a supplemental tax bill for the difference in taxes owed back to the date of ownership change.