Attention, heirs: renting an inherited house or keeping it as a second home could skyrocket your property tax in Los Angeles

Dealing with an inheritance in the United States often means navigating a complex mix of rules at the same time families are coping with a loss. From wills and probate to estate taxes and state inheritance taxes, the process of passing assets from a deceased person to their heirs and beneficiaries varies widely from state to state.

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On top of that, one of the most urgent things an heir needs to solve is the property tax. Since 2021, Proposition 19 has changed what happens when children inherit their parents’ home, and many families in Los Angeles find out too late.

What happens to the property tax if the heir doesn’t use the house as principal residence

Before 2021, parents could pass their home to their children without a property tax reassessment, regardless of its value and even if the children rented it out. That allowed heirs to keep the parents’ low assessed value under Proposition 13.

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But since February 2021, according to the Los Angeles County Assessor, heirs can only keep their parents’ property tax base on an inherited property if it was the parents’ principal residence and becomes the child’s principal residence within one year.

Rental properties, vacation homes, and commercial real estate no longer qualify

How can you keep your parents’ tax base

There are some strict requirements that heirs need to meet if they want to stay with the same property tax base. These are:

• The home must have been the parents’ principal residence.
• The child must move in and make it their own principal residence within one year of the transfer.
• The child must file for the Homeowners’ Exemption (or the Disabled Veterans’ Exemption) within that same year.
• The protection has a cap: for transfers through Feb. 15, 2027, it covers the parents’ taxable value plus $1,044,586, according to the State Board of Equalization. Any value above that is added to the tax base.

Grandchildren can also qualify, but only if their parents have died.

How much can the tax rise

If the heir rents out the home, keeps it as a second home or does not move in on time, the property is reassessed at its full market value.

The reassessment only affects property taxes. For federal income tax purposes, heirs still receive a stepped-up basis, meaning the property’s value resets to its value on the date of death, so selling soon after inheriting usually generates little or no capital gain.