I inherited an LA apartment building — what does Prop 19 do to my property taxes?
Since February 16, 2021, California's Proposition 19 eliminated the parent-child exclusion for inherited rental and investment property — an apartment building passing from parent to child is reassessed to full market value, no matter what the parents' Prop 13 basis was. A building assessed at $400,000 on a 1980s basis that is worth $3M today jumps from roughly $5,000 a year in property tax to roughly $37,000. That reassessment shock, combined with the step-up in basis that makes an early sale nearly capital-gains-free, is why so many heirs sell within the first year or two.
The math that changed in 2021.
Under the old rules (Prop 58), parents could pass the family home plus up to $1M of assessed value in other real estate — including apartment buildings — to children with no reassessment. Prop 19 killed that for anything except a primary residence the child actually moves into within one year, and even that exclusion is capped (about $1.04M of value above the old assessment through early 2027 — the figure indexes every two years). An apartment building gets no exclusion, period. The county assessor reassesses as of the date of death, and the supplemental and escape bills arrive retroactively — often months later, often as an unpleasant surprise on top of everything else an heir is handling.
Why heirs run the sell-versus-hold numbers early.
The reassessment cuts the building's cash flow going forward — sometimes to zero on an RSO rent roll that was only pencilling because of the old tax basis. Meanwhile, the income-tax side points the other way: inherited property gets a step-up in basis to date-of-death value, so a sale soon after death typically triggers little or no capital gain and no depreciation recapture. Higher carrying costs if you hold, nearly tax-free proceeds if you sell — that asymmetry is why the estate conversation so often ends at the listing conversation. The right answer depends on the building, the rents, and the family; run both numbers before deciding.
Can I avoid Prop 19 reassessment by moving into one of the units?
Generally no. The family-home exclusion applies to a parent's primary residence, not to a multi-unit rental — and even where a unit qualifies, the exclusion would not cover the rest of the building. Talk to an estate attorney before relying on any carve-out.
Does holding the building in a trust avoid the reassessment?
No. A transfer from parent to child through a living trust is still a change in ownership for property-tax purposes. Trusts avoid probate, not Prop 19.
When does the higher tax bill actually start?
The reassessment is effective as of the date of death, even if the assessor processes it later. Expect supplemental or escape assessment bills that reach back to that date.
SHAYA LOWENSTEIN · LYON STAHL INVESTMENT REAL ESTATE · DRE #01942326 · (323) 944-2221