What Changed Under Prop 19
Before Prop 19, children could inherit a parent's home — or even rental and investment properties — without triggering a property tax reassessment (under Prop 58/193). After Prop 19 (effective February 16, 2021), only a primary residence transferred to a child who will use it as their own primary residence may qualify for any exclusion.
The New Limited Exclusion
For the new exclusion to apply: (1) the transferred property must be the parent's primary residence, and (2) the child must move in and claim it as their primary residence within 1 year. Even then, reassessment is only fully avoided if the market value does not exceed the parent's assessed value by more than $1 million. Above that threshold, the assessed value is set at market value minus $1 million.
What Is Now Fully Reassessed
- Rental properties and residential investment property
- Vacation homes and second homes
- Commercial real estate
- Any home the inheriting child does not occupy as their primary residence
The Capital Gains Tension
Prop 19 forces families to confront a fundamental tradeoff: holding property until death preserves the stepped-up basis (eliminating capital gains) but may trigger Prop 19 reassessment. Gifting during life may preserve a lower property tax base in some cases but forfeits the step-up. See Stepped-Up Basis and Carryover Basis.
Disclaimer: This glossary entry is for general educational purposes only and does not constitute legal or tax advice. Laws change frequently and vary by individual circumstances. Consult a licensed California attorney or CPA for guidance on your specific situation.