What is the new property inheritance law in California?
Asked by: Kristy Haley | Last update: February 13, 2026Score: 4.9/5 (18 votes)
New California inheritance laws, primarily Proposition 19 (Prop 19) (effective 2021) and recent probate code changes (April 2025), significantly alter property tax benefits and probate processes for heirs, making it harder to keep low property tax bases on inherited homes unless the child uses it as their primary residence, while also expanding small estate probate exemptions for primary residences up to $750,000. Key changes include strict rules for retaining Prop 13 tax benefits, potential reassessment for non-primary residences or high-value homes, and streamlined probate for some small estates.
What is the new inheritance law in California?
California's key inheritance law changes center on Proposition 19 (2020), severely restricting property tax breaks on inherited homes (requiring the child to move in to keep the lower tax base) and eliminating the transfer of other real estate without reassessment, plus newer rules (AB 2016, effective April 2025) that simplify probate for small estates, raising the home value limit to $750,000 for expedited transfer. Heirs must now meet strict residency and filing requirements to benefit from tax exclusion, while new small estate rules offer faster probate for primary residences under a certain value, but only if conditions are met.
How to avoid California property tax on inherited property?
Primary Residence Requirement
To avoid a tax increase, children who inherit a property must make it their main home. If they don't, the property taxes will be based on its full market value.
What does prop 19 mean for inherited property?
Allows transfers of a family home or family farm between parents and their children without causing a change in ownership for property tax purposes. It is an exclusion from change in ownership. Allows transferee to retain the taxable value of the transferor.
How much can you inherit without paying taxes in California?
You can inherit money in California without paying state tax, as California has no state inheritance or estate tax, meaning there's no limit on the amount you can receive tax-free from the state; however, high-value estates might face federal estate tax, and any income generated by inherited assets (like interest or dividends) is taxable, with inherited retirement accounts being a key exception where withdrawals are taxed, notes California's Franchise Tax Board and Bay Area Elder Law.
California's New Death Tax: Hidden Property Tax Hits Californians' Inherited Homes | Susan Shelley
Do I have to pay taxes on a $100,000 inheritance?
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.
Do I have to worry about the gift tax if I give my son $75000 toward a down payment?
No, you likely won't have to worry about paying gift tax on a $75,000 gift to your son for a down payment, as it falls under the high lifetime gift tax exemption (over $13 million), but you will need to file IRS Form 709 to report the gift because it exceeds the annual exclusion ($18,000 in 2024, $19,000 in 2025) and will reduce your lifetime exemption, as noted by SmartAsset.com and Loan Pronto https://rjfesq.com/blog/do-i-have-to-worry-about-the-gift-tax-if-i-give-my-son-75000-toward-a-down-payment, https://smartasset.com/taxes/gift-tax-give-son-75k-for-down-payment,.
What is the tax loophole for inherited property?
The main rule helping avoid capital gains tax on inherited property is the "Step-Up in Basis," which resets the property's cost basis to its fair market value at the time of the owner's death, drastically reducing potential gains if sold quickly. Another strategy is using the Section 121 exclusion by living in the home for two of the last five years before selling, excluding up to $250k/$500k of gain.
What happens when you inherit a house from your parents?
An heir who takes ownership of the family home must decide whether to continue making payments on the loan or use other assets to pay the mortgage off. Even if the home is put up for sale, mortgage payments must be made until money from the sale is available to pay off the mortgage.
What is CA Prop 19 loophole?
Prop. 19 would eliminate a loophole that has allowed the children and grandchildren of original property owners to avoid paying market-value taxes on a property that is not their primary residence.
At what age do you stop paying property tax in California?
You never completely stop paying property tax in California just by reaching a certain age, but you can get significant relief, like deferring payments through the Property Tax Postponement Program (PTP) if you're 62+ and meet income/equity rules, or reduce your tax bill with the Senior Citizen Homeowners' Exemption (SCHE) for 65+ with low income. Another option is Proposition 19, which lets seniors 55+ transfer their low tax base to a new home, preventing a large increase, notes the California Budget & Policy Center and the CA State Board of Equalization.
What are the disadvantages of inheriting a house?
Con: The unexpected burden of ongoing expenses
Expenses such as mortgage payments, utilities, home insurance, property taxes, maintenance, repairs, and more can collectively represent a significant monthly financial commitment that your child or children may not have had to manage previously.
Do property taxes go up when you inherit a house in California?
Heirs must make the inherited property their primary residence to keep the parents' or grandparents' low tax base. Even then, the exclusion is capped: the taxable value can increase if the market value is more than $1,044,586 above the existing tax base for transfers between Feb. 16, 2025, and Feb.
What are the new probate laws in California 2025?
Exclusion of Primary Residence: Homes valued up to $750,000 will no longer be subject to probate. Applies to Deaths on or After April 1, 2025. Higher Value Limit for Succession Petition: Estates can now use a "Petition to Determine Succession to Real Property" for homes up to $750,000—avoiding full probate.
How much tax do I pay on an inherited property?
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
How is inherited property split between siblings?
Unless the will explicitly states otherwise, inheriting a house with siblings means that ownership of the property is distributed equally. The siblings can together decide between the following options: Keep the home and share the costs of ownership. Sell the home for income.
Can my parents just give me their house?
Yes, your parents can gift you a house, but it involves navigating tax implications (like filing gift tax forms and potential capital gains taxes for you) and legal steps, with potential downsides like higher property taxes or Medicaid transfer penalties for them, making it crucial to consult a lawyer or financial advisor to understand the specific federal and state rules, especially regarding the cost basis, gift tax exclusion, and lifetime exemption.
What are the six worst assets to inherit?
The 6 worst assets to inherit often involve complexity, ongoing costs, or legal headaches, with common examples including Timeshares, Traditional IRAs (due to taxes), Guns (complex laws), Collectibles (valuation/selling effort), Vacation Homes/Family Property (family disputes/costs), and Businesses Without a Plan (risk of collapse). These assets create financial burdens, legal issues, or family conflict, making them problematic despite their potential monetary value.
What is the 7 year rule for inheritance?
The "7-year inheritance rule" (primarily a UK concept) means gifts you give away become exempt from Inheritance Tax (IHT) if you live for seven years or more after making the gift; if you die within that time, the gift may be taxed, often with a reduced rate (taper relief) applied if you die between years 3 and 7, but at the full 40% if you die within 3 years, helping people reduce their estate's taxable value by giving assets away earlier.
What is the 2 year rule for deceased estate?
The "two-year rule" for deceased estate property, primarily in Australia (ATO) and relevant to U.S. spousal rules, generally allows beneficiaries to sell an inherited main residence within two years of the owner's death to qualify for a full Capital Gains Tax (CGT) exemption, resetting the cost basis to the market value at death and avoiding tax on appreciation; exceptions and extensions exist for factors like spouse usage or estate delays, but it's crucial to sell and settle within this period or apply for extensions.
What is the most tax-efficient way to leave a home to a child?
The most tax-efficient way to leave a home to a child usually involves leaving it in your will for them to inherit, which qualifies for a stepped-up tax basis (reducing capital gains tax if sold) and avoids immediate gift taxes, though trusts (like Revocable Living Trusts for probate avoidance or QPRTs for advanced planning) or Transfer-on-Death (TOD) deeds (where available) offer control and probate avoidance, while outright gifting is generally less tax-efficient due to inherited basis issues. Consulting an estate planning attorney is crucial to choose the best method for your specific situation.
How to avoid paying taxes on inherited property?
Here are five ways to avoid paying capital gains tax on inherited property.
- Sell the inherited property quickly. ...
- Make the inherited property your primary residence. ...
- Rent the inherited property. ...
- Disclaim the inherited property. ...
- Deduct selling expenses from capital gains.
Can I give my daughter $100,000 to buy a house?
Yes, you can give your daughter $100,000 to buy a house, but you'll need to document it with a gift letter for the lender and file a IRS Form 709 (Gift Tax Return), as the amount exceeds the annual exclusion, though you likely won't owe tax due to the large lifetime exemption. Lenders require proof the money isn't a loan, and you'll need to show the fund transfer from your account to hers.
Is it better to gift or leave inheritance?
For some families, leaving a larger inheritance after death aligns better with their financial situation and personal values. More time to grow assets: Keeping assets invested allows them to compound for longer.
Can I just give my son 100k?
Yes, you can gift your son $100,000, but you'll need to file a gift tax return (Form 709) to report the amount exceeding the annual exclusion, though you likely won't pay tax unless you've already used up your multi-million dollar lifetime exemption (which is over $13 million for 2025). For 2025, the annual limit is $19,000 per person, so the $100k gift means $81,000 ($100k - $19k) counts against your lifetime exemption, with no immediate tax due for either you or your son.