Inheriting a house can be both a blessing and a challenge — especially when it comes time to sell. Along with emotions and family decisions, you might be wondering: “What taxes do I have to pay when selling an inherited house in California?”
The good news? California offers several tax benefits that can help you keep more of the proceeds. But it’s still important to understand capital gains, property taxes, and other potential costs before you sell.
In this guide, we’ll break it all down — what taxes apply, how they’re calculated, and a few smart strategies to reduce what you owe.
For a full overview of selling an inherited property, check out our main guide: Selling an Inherited Home in Los Angeles: What You Need to Know.
Do You Pay Taxes When You Inherit a House in California?
California does not have an inheritance tax or estate tax. That means when you inherit a house, you won’t owe any immediate taxes simply for receiving it.
However, you may owe taxes when you sell the property — specifically capital gains tax — depending on how much the property’s value has increased since you inherited it.
Understanding the Stepped-Up Basis
When someone passes away and you inherit their home, the property’s “basis” resets to its fair market value on the date of death. This is called a stepped-up basis, and it’s one of the biggest tax benefits for heirs.
Example:
Your mother bought her Los Angeles home in 1985 for $150,000. When she passed away in 2024, the home’s market value was $900,000.
- Her original cost basis: $150,000
- Your new stepped-up basis: $900,000
If you sell the home for $920,000, your taxable gain is only $20,000, not $770,000.
The IRS Publication 551 explains how basis adjustments work for inherited property.
Capital Gains Tax on an Inherited Property
You’ll pay capital gains tax only on the difference between the stepped-up value and the sale price, minus any selling costs.
Short-Term vs. Long-Term
Inherited properties are always considered long-term assets, regardless of how long you’ve owned them. That’s good news — because long-term capital gains are taxed at lower rates.
Federal Capital Gains Rates
For most taxpayers, the federal capital gains tax rate is 0%, 15%, or 20%, depending on income level. You can check your exact bracket on the IRS Capital Gains Tax Rate Schedule.
California State Capital Gains
California doesn’t have a separate capital gains tax — instead, it taxes all income (including capital gains) at your regular state income tax rate, which can range from 1% to 13.3% depending on your income bracket.
Property Taxes on an Inherited Home
When you inherit a house in California, property taxes don’t automatically reset to the home’s market value unless ownership is transferred outside of parent-child or grandparent-grandchild exclusions.
Proposition 19 Rules
As of February 2021, Proposition 19 changed how property tax reassessments work. Under these rules, children who inherit a home must make it their primary residence within one year to avoid reassessment.
If they sell the house or use it as a rental, property taxes are reassessed to the current market value — which can significantly increase the bill.
Learn more about these rules at the California State Board of Equalization – Proposition 19 Resource Page.
Additional Taxes and Fees to Watch Out For
1. Transfer Taxes
Most California counties charge a documentary transfer tax when the home’s title changes hands. It’s usually around $1.10 per $1,000 of the sale price, though some cities charge more (like Los Angeles, San Francisco, and Culver City).
2. Probate Costs
If the home is still in probate when sold, you’ll need to pay court fees, appraisal costs, and attorney’s fees before distributing proceeds. You can learn more in our guide: The 2025 Guide to Selling a House in Probate in California.
3. Depreciation Recapture
If the home was used as a rental and you claimed depreciation deductions, you may owe depreciation recapture tax when selling.
The IRS Publication 527 explains how rental property depreciation works and how it affects your taxes later.
How to Reduce Taxes When Selling an Inherited Home
There are several ways to minimize taxes legally and keep more profit from the sale.
1. Sell Soon After Inheriting
If you sell the home soon after inheriting it, the sale price will likely be very close to the stepped-up market value. That means your capital gains — and therefore your taxes — will be minimal or even zero. This approach is especially helpful if you don’t plan to live in or rent out the property.
2. Deduct Selling Expenses
You can deduct certain selling costs like realtor commissions, title fees, escrow charges, and closing costs from your taxable gain. These expenses reduce your overall profit on paper, lowering the amount of capital gains tax you owe. Keep thorough records of all transaction-related costs to maximize your deductions.
3. Consider 1031 Exchange (for Investment Properties)
If you decide to rent out the inherited home before selling, you might qualify for a 1031 exchange, which allows you to reinvest the proceeds into another property without paying immediate capital gains tax. This strategy defers taxes and helps you build long-term real estate wealth.
Learn how 1031 exchanges work through the IRS 1031 Like-Kind Exchange Guide.
4. Work with a Tax Professional
Selling an inherited home can be complex, involving multiple tax layers and timing considerations. A certified CPA or estate planning attorney can help you determine the best time to sell, apply exemptions correctly, and avoid costly mistakes. Even one consultation can save you thousands in unnecessary taxes.
Example — Selling an Inherited Home in California
Scenario:
John inherits his father’s home in Glendale valued at $950,000 in 2024. His father originally bought it for $220,000.
- Stepped-up basis: $950,000
- Sale price: $975,000
- Selling costs: $25,000
- Taxable gain: $0
Result: John pays no capital gains tax because his net gain after costs is zero — all thanks to the stepped-up basis rule.
Final Thoughts
So, what taxes do you pay when selling an inherited house in California?
✅ No inheritance tax.
✅ Capital gains only on profit above the stepped-up value.
✅ Property taxes may adjust under Prop 19.
Selling an inherited property doesn’t have to be complicated — especially with the right information.
At Mrs. Property Solutions, we help families across California sell inherited homes fast and fairly, often without repairs, listings, or stress. If you’re ready to move forward, we can give you a fair, all-cash offer and close in as little as 7–14 days.
Reach out today to get started — and make selling simple again. 💛