Does California have an inheritance tax?
Did a loved one recently pass on and leave you their home? It’s a wonderful gift and a nice bit of family history. But if that loved one was not your parent or grandparent, it may make you wonder about California inheritance tax.
When you inherit a house in California, does property tax change that much? The short answer is, yes—and sometimes it can be a shocker. Especially in California where housing values are going through the roof. If your inherited house comes with a property tax bill you are unable, or unwilling, to pay. Then selling the house is the fastest way to get out from under the overwhelming tax debt.
Why Does Property Tax Change in California When You Inherit a House?
The property tax bill on your inherited house is the result of California’s Proposition 13, which was passed 40 years ago. Faced with rapidly increasing property taxes back then, voters decided that property values for tax purposes should be frozen at their 1978 assessments. And with a 1% general levy that can increase by no more than 2% per year to account for inflation. There can be small local add-ons to the frozen tax rate, such as for bond repayment or to finance schools and fire protection. In sum, the Prop 13 bill reigns in the cost of California property taxes—until the house changes hands, that is.
When a California house is inherited, property taxes will be reconfigured based on the current market value. Which can amount to a really big jump in cost. Property values here have risen much faster than 2% per year in California since 1978. So, when you inherit a house that has not been changed hands for a long time. The new tax assessment on a property may be dramatically higher than it had been. There is one exception, however: low tax rates provided by Proposition 13 have been made inheritable for houses passed on to children or grandchildren.
If you did not inherit the house from a parent or grandparent. However, the property tax for the year is due immediately and will probably amount to several thousand dollars. If you don’t have that money to spare, you can pay the tax late, of course. But then you have to pay penalties and interest as well.
There will be a lien on your house until the tax is paid in full. And meaning that the debt is public record and can damage your credit score. The debt could also be sold to a collection agency. These agencies have been known to foreclose on properties over just a few thousand dollars of unpaid taxes. Because they may stand to make a hefty profit that way. When that happens. you get nothing from the foreclosure sale. No matter how much money is left over after the taxes and other debts are settled.
What if I can’t pay the taxes when I inherit property?
If you can’t pay the big tax bill right away, the costs of keeping the inherited house will just continue to mount. Unless you sell it—quick. The house and yard have to be maintained, utilities have to be paid. And there is always a security to think of, especially if the house is vacant. Of course, you’ll also need to keep it insured so you don’t lose everything in the event of a disaster, manmade or not. These ongoing expenses will add to your financial burden and credit worries. Selling your inherited house before your credit is ruined is the obvious, and permanent, solution. By selling, you can settle the tax debt with the proceeds and potentially walk away with some cash as well as peace of mind.
Of course, you might hit a few snags when trying to sell the house. First, the house has to be made marketable for most home buyers. If you are selling a home that needs major repairs, you may be looking at a variety of headaches, financial and logistical, that may last for months. Even if it’s not that extreme, any deferred maintenance should be taken care of and the house should be scrubbed clean then staged for showing.
Even this could be time-consuming and expensive if the house hadn’t been kept up too well in the last few years. Also, you’ll have to find a real estate agent, set a price, and negotiate your real estate agent’s commission. And then you have to hope for the best and wait for the sale—with a tax lien hanging over your head. This is probably not what you loved had in mind when they left you their home.
A Simple Way to Avoid Property Tax Bills on Your Inherited House
If you are overwhelmed by tax debt and need to sell your inherited home sooner rather than later, Osborne Homes can help. Since we are a local real estate investing company, we can come to take a look at the house and make a fair offer on it, usually within 48 hours of your call. It’s all right if there’s a tax lien on the property. And you don’t have to fix it up at all. If you accept our offer, we can often have cash payment ready for you in about a week. Your tax problem can be solved once and for all, quickly and easily.