Inherited Property in CA? Proposition 19 May Have Changed Everything

For many California families, real estate is more than an asset, it is a legacy. Homes and rental properties are often passed down with the expectation that children can retain them without significant tax consequences. Unfortunately, Proposition 19 (“Prop 19”) dramatically changes those assumptions, and many families are only discovering the impact after receiving a shocking property tax bill.

Prop 19, which took effect in February 2021, reshaped California’s property tax rules for inherited property. While it was promoted as a reform measure, its long-term effects continue to surprise heirs, trustees, and even longstanding estate plans that were created under prior law.

What Changed Under Proposition 19?

Before Prop 19, parents could transfer a primary residence, and often additional real estate, to their children without triggering a property tax assessment. This allowed families to keep property taxes based on historic assessed values, sometimes saving tens of thousands of dollars per year.

Under current law, that protection is mostly gone.

Today, only a parent’s primary residence may qualify for reassessment relief and even then, only if strict conditions are met. The child must use the inherited property as their own primary residence and must file timely claims with the county assessor. Even if those requirements are satisfied, there is a cap on how much assessed value can be excluded. Any value above that threshold is reassessed at current market rates.

Rental properties, vacation homes, and investment real estate no longer qualify for the parent-to-child exclusion. These properties are generally reassessed at full market value upon transfer, often resulting in immediate and substantial tax increases.

Why Families are Caught Off Guard

One of the most damaging aspects of Prop 19 is that it does not automatically apply exclusions. The burden is on the heir or trustee to take timely action and correctly. Some common mistakes include failing to file the required claim forms within the deadline, assuming a trust automatically preserves property tax benefits, believing prior estate plans still provide protection, or no understanding the residency requirement for inherited homes. Once reassessment occurs, reversing it can be extremely difficult or impossible without legal intervention.

Prop 19 is More than a Property Tax Issue

What many taxpayers do not realize is that Prop 19 often intersects with estate planning, income tax, and trust administration. A poorly structured transfer can create not only higher property taxes, but also capital gains exposure, trust distribution issues, and family disputes.

For example, siblings may disagree on whether one child should move into the inherited home to preserve partial tax benefits. Trustees may face liability for failing to advise beneficiaries properly. Heirs may be forced to sell property they intended to keep simply because the tax burden becomes unsustainable. These are not hypothetical scenarios; they are playing out across California every day.

Why working with a CA Tax Attorney Matters

Due to the technical nature of Prop 19, it can be unforgiving and confusing, without the support and guidance of a trusted tax attorney. It is heavily enforced at the county level as well. A tax attorney provides more than general advice and brings legal analysis, advocacy, and strategic planning to the table. A qualified California trusted tax attorney can evaluate whether an inherited property qualifies for any exclusions, ensure proper filings are completed accurately and on time, challenge incorrect or excessive reassessments, coordinate with estate planning professionals to reduce long-term exposure, and represent clients in disputes with county assessors. Perhaps, more importantly, a tax attorney helps families understand their options before irreversible decisions are made.

Education is the First Line of Protection

The biggest risk under Prop 19 is misinformation. Many families rely on outdated assumptions or informal advice, only to learn too late that the rules have changed. Education, planning, and proactive legal guidance can mean the difference between preserving a family asset and facing an unexpected and permanent tax burden.

If you are inheriting property, serving as a trustee, or planning your estate, now is the time to understand how Prop 19 truly applies to your situation. California property tax law is no longer simple and navigating it without experienced legal guidance can be a costly mistake.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.