Taxes When You Sell an Inherited House in California: Capital Gains, the Step-Up in Basis, and Prop 19

This guide is for heirs and executors in Redding, Anderson, Red Bluff, Corning, or nearby who are deciding whether to sell, keep, or rent a house they inherited. I wrote it because the three questions I hear are almost always the same: will I owe capital gains, what is this "step-up" everyone mentions, and will the property tax jump if I keep the house.

I'm a home buyer, not a tax advisor. This is general information, not tax or legal advice. Talk to a CPA, enrolled agent or other tax professional about your situation. If you want the selling steps, probate, and how a sale works during court, read about selling an inherited or probate house in Shasta or Tehama County. I don't repeat those steps here.

Last reviewed October 7, 2026 by Derek Torculas. Tax figures were checked against IRS, Franchise Tax Board, Board of Equalization, and California code sources on that date (listed at the bottom of the page).

The short map

The Three Taxes Heirs Ask About

People mix these up, and they are three different bills. Only the first one is about the sale itself.

Capital gains

Capital Gains on an Inherited House, in Plain English

Gain is the profit, if any, between what the tax rules call your starting value and what you actually clear. IRS Publication 523 figures it this way: selling price minus selling expenses equals the amount realized. Amount realized minus adjusted basis equals gain or loss.

"Basis" is just the starting value the IRS uses. For a house you bought, that starting value is what you paid, plus certain improvements. For a house you inherited, the starting value is different. That's the next section.

Inherited property is always treated as held more than one year, no matter how soon you sell (IRS Publication 544). Any gain gets long-term rates, which are 0%, 15%, or 20% depending on your taxable income (IRS Topic 409). Some people with high investment income may also owe the net investment income tax. Topic 409 has the current rules. I don't list income brackets here, because they change.

Step-up in basis

The Step-Up in Basis: Why Many Inherited Houses Have Little or No Gain

Under federal law, an heir's basis is generally the home's fair market value on the date of death, or on the alternate valuation date if the executor chooses that date for the estate tax return (Internal Revenue Code section 1014(a); IRS Publication 551).

In plain words: the growth in value while your parent owned the house generally isn't taxed when you sell. Only the change after the date of death counts.

If an estate tax return was filed, your basis is the value on that return. If no return had to be filed, which is most estates, use the date-of-death appraised value (IRS Publication 523, "Home Inherited"). California generally follows the same federal basis rules for figuring gain or loss (California Revenue and Taxation Code section 18031, which adopts the federal basis rules, including section 1014).

If you're the surviving spouse (California is a community property state)

In community property states, including California, when one spouse dies the whole community property, including the surviving spouse's half, generally gets a new basis at its date-of-death value, as long as at least half of the community interest is included in the deceased spouse's estate (IRS Publication 551, "Community Property"; Publication 523). Surviving spouses also have special home-sale exclusion rules in Publication 523. Ask your CPA how both rules apply to you.

Timing

Sell Now or Keep It? How Timing Changes the Tax

Selling soon after the death usually means a price close to the date-of-death value, so the taxable gain is often small. Look at the example above. If you keep the house and the value rises, the increase after the date of death can be taxable when you sell.

Improvements you make after inheriting, a new roof for example, generally add to your basis. Keep the receipts (IRS Publication 551, "Increases to Basis"). Simple repairs aren't the same as improvements. Your CPA can tell the difference.

Taxes are only one part of the choice. While you decide, the house keeps costing money: property tax, insurance, utilities, and upkeep. Read about the hidden costs of holding an inherited house before you settle on a plan. If you plan to rent it, talk to a CPA first. Renting has its own rules for rental income and depreciation.

A house that sits empty, a house full of belongings, or a house you have to manage because you live out of the area each adds work on top of the tax question. Those are covered on the pages for a vacant house, a house full of belongings, and owners who live out of the area.

$250,000 tax break

Can Heirs Use the $250,000 Tax Break on an Inherited House?

The exclusion lets people leave out up to $250,000 of gain, or $500,000 on a joint return, when they sell their own main home (IRS Topic 701). To qualify, you generally must have owned the home and lived in it as your main home for at least 2 of the 5 years before the sale (Topic 701 and Publication 523).

So it usually doesn't apply to an heir who never lived there. That's fine for most heirs who sell soon, because the step-up already keeps the gain low. If you move in and later meet the 2-out-of-5-year tests, it may apply. Surviving spouses have special rules. Ask a tax professional.

California generally follows the federal home-sale exclusion (IRC Section 121), so if an heir moves in and uses the inherited house as their main home long enough to qualify, the same exclusion can apply on the California return (FTB, Income from the sale of your home).

That exclusion is for a home you already live in. Read How the home sale exclusion works when you sell your own home.

California

How California Taxes the Gain

The Franchise Tax Board says it plainly: "California does not have a lower rate for capital gains. All capital gains are taxed as ordinary income." That's on the FTB capital gains and losses page.

You report the sale on your federal return, Form 1040, Schedule D. If California treats the sale differently from the federal return, you also file California Schedule D (540). Expect a Form 1099-S. The person responsible for closing, usually escrow, generally must report a real estate sale on Form 1099-S (IRS Publication 544). Give it to your tax preparer.

Property tax

If You Keep the House: Prop 19 and Your Property Tax

Since February 16, 2021, Proposition 19 limits the parent-child exclusion to a family home (the parent's main home that becomes the child's main home) or a family farm. The Board of Equalization Prop 19 page and the Shasta County Assessor-Recorder handout both say this.

To keep the parent's lower taxable value, the child must:

• Move in and make it their main home, and file for the homeowners' exemption (or disabled veterans' exemption) within one year of the transfer.
• File the parent-child claim, form BOE-19-P, within three years of the death or before the house is transferred to someone else, whichever is earlier. The Board of Equalization filing checklist spells out those deadlines.

There is also a value cap. For transfers from February 16, 2025 through February 15, 2027, the exclusion covers the parent's factored base-year value plus $1,044,586. Value above that is added (BOE "$1 Million Amount Adjustments"). Few Shasta or Tehama homes hit this cap.

If no child moves in, for example the heirs plan to sell or rent it, the exclusion doesn't apply and the county reassesses the home to its market value as of the date of death. Rentals and second homes don't qualify. A transfer at death is deemed to occur on the date of death. Those points are on the BOE Prop 19 FAQs.

If the child moves out later, the home gets a new taxable value (its date-of-inheritance market value, adjusted for inflation) as of the next lien date (BOE Prop 19 FAQ; BOE Letter to Assessors No. 2026/026).

Everyone still has a filing to make. Within 150 days after the death, or in probate when the inventory and appraisal is filed, a change in ownership statement goes to the county recorder or assessor (Revenue and Taxation Code section 480(b)). The county may then send a supplemental tax bill (BOE Prop 19 Fact Sheet).

Selling during probate is a different question from the tax. For the court steps, go back to selling an inherited or probate house in Shasta or Tehama County. If the house also has back property taxes or liens on the house, those are paid from the sale proceeds at closing, the same as any other sale.

Inheritance tax

Is There an Inheritance Tax in California?

No. For deaths on or after January 1, 2005, no California estate tax return is required, and California's old inheritance tax applies only to deaths before June 8, 1982 (California State Controller's Office, "California Estate Tax").

Federal estate tax applies only to very large estates. The basic exclusion amount is $15,000,000 for 2026 (IRS, "What's new — Estate and gift tax"). The estate handles that tax. The heir who sells the house does not file it as part of the sale.

Income tax on a sale, property tax, and estate tax are three separate things. A "no" on inheritance tax does not answer the capital-gains question or the Prop 19 question.

Records

Paperwork to Keep for Your CPA

A date of death appraisal is the record that usually proves your basis. Bring these to your tax preparer:

• A written date-of-death value. In a California probate, the inventory and appraisal lists each item's fair market value at the time of death, and a court-appointed probate referee appraises the real estate (Probate Code section 8802 and section 8902). Outside probate, ask your CPA what kind of appraisal to get. Here's what probate means for your timeline.
• Receipts for improvements made after the death.
• The closing statement from escrow and the Form 1099-S.
• Any estate tax paperwork, for example a Schedule A to Form 8971, if the estate filed one (IRS Publication 544 and Publication 551).

Bring this list

Questions to Ask Your CPA or Tax Professional

I can explain the rules. I can't apply them to your family. These are the questions worth asking:

• "What's my basis, and what records prove it?"
• "If I sell this year, will there be any gain after selling costs?"
• "Does the estate or trust sell it, or do we? Whose return reports the sale?"
• "If we keep it, what happens under Prop 19? Should one of us move in?"
• "If I'm the surviving spouse, how do the community property and home-sale rules apply?"
• "Do I need to make estimated tax payments?"

If you decide to sell

Where a Quick, Simple Cash Sale Fits

Taxes are the same whether you sell to a cash buyer or list with an agent. The gain math doesn't change. What a cash sale can change is time, work, and holding costs.

If you decide to sell, we buy houses as-is in Shasta and Tehama County, with belongings still inside. We can close in as little as 7 days once you accept and title is clear. You help choose a closing date that fits your move; staying after closing is handled case by case. Unpermitted additions are reviewed case by case.

Houses we buy: single-family homes; mobile and manufactured homes on their own land (not in parks); rural homes on acreage and small ranches; duplexes and small rentals. We don't buy vacant land.

If the house is in great shape and you're not in a hurry, listing with a local agent may net more. I'll tell you if that's the case. The comparison is in cash offer vs. listing, and how our cash offers work walks through the steps. If you're comparing buyers, read how to spot a fake house buyer and about Derek.

Local cash buyer for 10+ years. 100+ NorCal homes purchased. BBB A+ rated. Read our Google reviews.

Where we buy

We Buy Inherited Houses Across Shasta and Tehama County

Sources We Checked (October 7, 2026)

• 26 U.S.C. §1014(a), basis of inherited property
• IRS Publication 551 (12/2025), Basis of Assets
• IRS Publication 544 (2025), holding period and Form 1099-S
• IRS Publication 523 (2025), Selling Your Home
• IRS Topic 409, long-term rates
• IRS Topic 701, home sale exclusion
• Franchise Tax Board, "Capital gains and losses"
• Cal. Rev. & Tax. Code §18031
• Board of Equalization, Proposition 19
• BOE Prop 19 Fact Sheet (publication 801)
• BOE Letter to Assessors No. 2026/026 (August 3, 2026)
• Shasta County Assessor-Recorder, parent-child exclusion handout
• BOE listing of county assessors
• Cal. Rev. & Tax. Code §480(b), change in ownership statement
• Probate Code §8802 and §8902
• California State Controller's Office, "California Estate Tax"
• IRS, "What's new — Estate and gift tax"

NorCal Home Offer is a home buyer, not a tax advisor, law firm, or appraiser. This page is general information, not tax or legal advice. Tax rules and dollar limits change. Talk to a CPA, enrolled agent or other tax professional about your situation. Last reviewed: October 7, 2026.