Inheriting a house can feel like both a gift and a burden. You're grieving a loved one while simultaneously facing decisions about property you may not want—or can't afford to keep. If you've inherited a home in California, understanding the legal and tax landscape helps you make informed choices.
Does the Property Need to Go Through Probate?
The first question is whether you can actually sell the property. In California, the answer depends on how the deceased person held title.
When Probate Is Required
Probate is typically required when:
- The home was held in the deceased person's name alone
- There was no living trust or transfer-on-death deed
- The estate exceeds $184,500 in total value (2025 threshold)
California probate typically takes 12-18 months to complete. During this time, heirs generally cannot sell or refinance the property without court approval.
When Probate Can Be Avoided
You may be able to skip probate if:
- The property was held in a living trust (successor trustee can act immediately)
- There's a valid transfer-on-death deed
- The property was held in joint tenancy with right of survivorship
- The entire estate qualifies for simplified "small estate" procedures
Properties held in a properly funded trust can often be sold within weeks of death, as the successor trustee has immediate authority to act.
Understanding the Step-Up in Basis
Here's the most important tax concept for inherited property: the step-up in basis.
Under Internal Revenue Code Section 1014, when you inherit property, your "basis" (the value used to calculate capital gains) automatically resets to the property's fair market value at the date of death—not what the original owner paid for it.
Why This Matters
Let's say your parents bought their home in 1985 for $150,000. When they pass away, it's worth $800,000. If they had sold it themselves, they would owe capital gains tax on the $650,000 gain.
But because you inherited it, your basis "steps up" to $800,000. If you sell for $800,000, you have zero capital gains. Even if you sell for $820,000, you only owe tax on the $20,000 gain.
California's Community Property Advantage
California is a community property state, which provides an additional benefit. When one spouse dies, both halves of community property receive a stepped-up basis—not just the deceased spouse's half. This can significantly reduce taxes for a surviving spouse who later sells.
The Step-Up Doesn't Expire
A common misconception is that you must sell quickly to benefit from the step-up. That's not true—the stepped-up basis remains your basis indefinitely. However, if the property appreciates significantly after the date of death, that appreciation would be taxable.
Capital Gains Tax Rates
If you do have taxable gain on an inherited property sale, here's what to expect:
Federal Rates (2025)
Long-term capital gains (property held over one year) are taxed at:
- 0% for lower income brackets
- 15% for middle income brackets
- 20% for high income brackets
California State Rates
California does not have a separate capital gains rate. Capital gains are taxed as ordinary income at rates up to 13.3%—among the highest in the nation.
Combined federal and state capital gains taxes can exceed 33% for high-income Californians. The step-up in basis helps most heirs avoid this entirely or significantly reduce it.
Proposition 19: The Property Tax Impact
While income taxes often work in your favor due to the step-up, property taxes are a different story since Proposition 19 passed in 2021.
Before Proposition 19
Children who inherited a parent's home could keep the parent's low property tax assessment indefinitely, regardless of whether they lived in the property.
After Proposition 19
Now, to retain the parent's low property tax base, the child must:
- Use the home as their primary residence
- File a homeowner's exemption claim
- Accept that the exclusion is capped (prior taxable value plus approximately $1 million)
If you inherit a home and use it as a rental or second home, it will be reassessed at current market value—potentially multiplying the property tax bill.
Example
Your parents paid $1,500/year in property taxes on a home now worth $900,000. If you don't move in, the property will be reassessed, and your annual tax bill could jump to $10,000 or more.
This change has made selling inherited properties more attractive for heirs who don't intend to live in them.
Your Options for an Inherited Property
1. Move In
If you want the property and can afford it, moving in preserves the property tax benefit and allows you to use the stepped-up basis if you later sell after meeting the primary residence requirement.
2. Keep as a Rental
You can keep the property as an investment, but be aware:
- Property taxes will be reassessed to current value
- You become a landlord with all associated responsibilities
- Future sale won't qualify for the primary residence exclusion
- A 1031 exchange could defer gains into another investment
3. Sell the Property
Selling is often the cleanest option, especially when:
- Multiple heirs need to divide the estate
- The property needs significant repairs
- You can't afford carrying costs
- You don't want landlord responsibilities
- The property is far from where you live
Selling shortly after inheriting typically results in minimal capital gains tax due to the step-up in basis.
Selling an Inherited Property: Practical Steps
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Confirm legal ownership: Ensure probate is complete or trust administration allows the sale
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Get a clear title: Resolve any liens, encumbrances, or title issues
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Decide on sale method: Traditional listing vs. cash buyer
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Clear the property: Remove personal belongings (or sell as-is to a buyer who handles cleanout)
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Coordinate with co-heirs: If multiple people inherited, everyone must agree
When a Cash Sale Makes Sense
Selling an inherited property to a cash buyer often makes sense when:
- The property needs work: Deferred maintenance, dated systems, or hoarding situations are common in inherited homes
- Speed matters: Estate settlement, avoiding holding costs, or family disagreements
- Remote location: Managing a sale from out of state is complicated
- Tenant situations: Existing tenants complicate traditional sales
- Emotional difficulty: Clearing out a loved one's home while staging for showings can be overwhelming
Cash buyers purchase as-is, handle cleanouts, and close quickly—reducing the stress of estate settlement.
Working With Co-Heirs
When multiple people inherit a property, selling requires agreement. Common challenges include:
- Different opinions on price or timing
- One heir wanting to keep the property while others want cash
- Disagreements about who handles the sale
- Out-of-state heirs unfamiliar with the California market
If heirs can't agree, a partition action (court-ordered sale) may be necessary—an expensive and time-consuming process that's best avoided through negotiation.
Moving Forward
Inheriting property is rarely simple, especially during a difficult emotional time. Understanding California's probate process, the step-up in basis, and your options helps you make decisions aligned with your needs.
Whether you choose to keep, rent, or sell an inherited home, the key is taking action before carrying costs, property taxes, and maintenance create additional burden. Many heirs find that a quick, clean sale allows them to honor their loved one's memory while moving forward with their own lives.