California’s Scheme to Increase Your Property Taxes
At Bethel Law, we help you understand estate planning, finances, real estate, and taxes. Today, we’re combining two of those—real estate and taxes—for a topic that impacts countless California families: property taxes and inheritance under Propositions 13 and 19.
This is one of the most-viewed topics on our YouTube channel, and for good reason. Prop 19 has changed the landscape, and in this post, I’ll walk you through what we know now, three years after it went into effect.
How California Property Taxes Work
California property taxes are similar to other states in that they’re based on the value of your real estate. The statewide average effective property tax rate is about 0.71%, but it varies by county—from 0.66% in Del Norte to 1.23% in Kern.
Your county assessor calculates the property’s value, determines the tax owed, and collects it—primarily to fund public education. Typically, the sales price sets the initial value. But things get tricky when the property isn’t sold—like when it’s gifted or inherited.
Prop 13: Capping Property Tax Increases
Prop 13, enacted in 1978, limits the increase in assessed value to no more than 2% annually—unless the property changes ownership. This creates a gap between assessed value and fair market value over time, especially in a market like California where home prices can rise 5% or more per year.
So if you bought a home for $500,000, your property taxes are based on that amount, and will only increase incrementally—even if the home's actual value skyrockets. That’s a great deal for owners but has ripple effects on housing supply and affordability.
Parent-Child Exclusion Under Prop 13
Under Prop 13, transfers between parent and child (and grandparent to grandchild) were excluded from reassessment, up to $1 million in assessed value. This meant children could inherit a home and keep their parents’ low property tax base.
If multiple properties were transferred, the $1 million cap applied in total—so a child could inherit two $500,000 homes without reassessment. Over that, only the excess would be reassessed.
Bet that all changed with Prop 19.
Prop 19: A Major Shift in Property Tax Rules
Prop 19, effective February 16, 2021, added a big condition to the parent-child exclusion: the property must be the principal residence of both the parent (at time of death) and the child (after inheritance).
This means that:
· If you inherit a home, you must live in it to avoid reassessment.
· If there are multiple children, at least one must move in and make it their primary residence.
· You have one year to claim it as your primary residence. There are no retroactive refunds for claims made after the first year. The reassessment exclusion would apply from that point onwards, however.
· If you move out late, the property will be reassessed from that point forward.
This change has narrowed the situations where a property can be passed down without a major tax hit. If you already have a home, don’t want to move, or the inherited home needs major work, you may be stuck with a tough choice: pay higher property taxes or sell.
Commercial properties? They no longer qualify for any exclusion under Prop 19—whether it’s a strip mall or a small family-run fast-food restaurant.
Learn More: Inheriting a Vacation Home? Beware of These California Taxes
Who Pushed for Prop 19?
Prop 19 was supported and promoted by the California Association of Realtors. More real estate inventory means more business. While there are arguments that it helps limit property hoarding and opens up housing, critics point out that it forces many into selling beloved family homes.
Gifting Property Isn’t the Answer
You might be thinking, “Why not just give the house to the kids now?”
Three problems:
· Property Tax Reassessment: That gift will likely trigger a reassessment – raising the property tax bill.
o Learn More: Answering Your Prop 19 & Property Tax Questions | California
· Gift Tax: Gifting a property worth more than the yearly gift tax exclusion limit ($19,000/year for 2025), will result in the IRS either taxing you, the giver, 40% of the value of the property or you dipping into your lifetime gift tax exclusion limit ($13.99m for 2025), thus leaving less room to avoid estate taxes after your death.
o Learn more: 2025 Gift & Estate Tax Changes Explained
· Capital Gains Taxes: Gifting property also transfers your original tax basis to the recipient. When they sell it, they pay capital gains on all that appreciation from your purchase – not the value at the time of your death.
o Learn More: Step-Up in Basis Explained: The Ultimate Tax Hack for Inherited Assets
But if they inherit the home, they get a stepped-up basis to the fair market value at death – greatly reducing capital gains if they sell.
Irrevocable Trusts Aren’t a Magic Fix Either
You might also think of using an irrevocable trust. Unfortunately, this route often causes reassessment at the time of the transfer, eliminates the stepped-up basis at death, and severely limits flexibility.
In most cases, it creates more problems that it solves and should only be done in exceptional cases where we are attempting to address a specific issue.
Learn more about real property in irrevocable trusts: IRS Changes Rules: Is Your Trust at Risk?
Final Thoughts
Prop 19 has dramatically changed the way we plan for real estate inheritance in California. It’s no longer safe to assume your kids can keep the family home with the same tax bill you had. Strategic planning is more important than ever.
Learn More: How to Build Generational Wealth (The Secrets Rich Families Use)
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