Before Prop 19, California parents could pass real estate to their children and the kids kept the parent's property tax basis — unlimited for primary residences, up to $1M of assessed value on other property like vacation homes or rentals.

Prop 19 changed that in February 2021. Inherited rental properties, vacation homes, and investment real estate now get reassessed at current market value — which means property taxes can jump dramatically.

The only exception is a primary residence, and even that comes with conditions. The child must move in within one year. The exclusion only shields the first $1.04M of the gap between market value and the existing base — anything above that gets added back. A $3M home with a $500K base has a $2.5M gap — subtract the $1M exclusion, and the new assessed value lands around $2M. And if the child later moves out, full reassessment to market value. A job offer in another city can undo the entire benefit.

A repeal campaign is now attempting to qualify an initiative for the November 2026 ballot — roughly 875,000 valid signatures needed by late June. If it qualifies and passes, reassessment rules would revert largely to the pre-Prop 19 system. The current initiative is also designed to be retroactive — heirs who were already hit with reassessments between 2021 and 2026 could apply to have their old tax basis reinstated.

The real problem: families are making irreversible decisions right now based on a rule that might change in eight months.

Some families are selling rental properties now — avoiding the reassessment hit but triggering capital gains and giving up rental income. Others are restructuring into LLCs or trusts, which adds legal costs and may affect the stepped-up basis depending on how the entity is structured. Some are doing nothing, accepting that heirs may face higher property taxes but preserving the step-up so they can sell later without a capital gains hit.

Each approach carries trade-offs, and the right one depends on the family's timeline, tax situation, and how much certainty they need. The ballot initiative adds a layer of uncertainty that makes this harder than usual. Families planning around California real estate right now should be thinking about structures that hold up under either outcome.

For educational purposes only. Not tax, legal, or investment advice.