Inheriting Property in the U.S.? Here’s What That Means for Your Property Taxes

Answer

When someone inherits real estate in the United States, one of the first financial questions that arises is whether—and how—property taxes will change. While federal estate tax may not apply to most heirs due to high exemption thresholds, local property tax obligations almost always continue. In some cases, they may increase significantly after the transfer of ownership.

The impact of inheritance on property taxes depends primarily on the state and county laws where the property is located. Property taxes in the U.S. are assessed and collected at the local level, and each jurisdiction has its own rules regarding reassessment after a transfer due to inheritance.

Here are some key factors to consider:

• Step-up in basis does not affect property taxes. While the IRS allows a “step-up” in cost basis for capital gains tax purposes—resetting the property’s value to its fair market value at the date of the owner’s death—this rule does not apply to local property tax calculations. Property taxes are typically based on the home’s assessed value, which is managed by the local assessor’s office.
• Reassessment laws vary by state. In many states, inherited property is reassessed to its current market value at the time of transfer, potentially increasing the annual property tax bill. However, some states offer exemptions or restrictions for transfers between family members. For example:
  • California: Proposition 19 allows certain parent-to-child or grandparent-to-grandchild transfers to retain the original property tax basis, but only for a primary residence (with limitations) or a farm.
  • Florida: The "Save Our Homes" cap may be removed upon inheritance, leading to reassessment at full market value unless the new owner qualifies for a homestead exemption.
• Heirs must notify tax authorities promptly. In most jurisdictions, beneficiaries must file documents such as a Change in Ownership Statement or apply for exemptions within a specific timeframe (often 60–150 days) to avoid automatic reassessment or penalties.
• Joint ownership can complicate tax outcomes. If property is held in joint tenancy with right of survivorship, only the deceased owner’s share may be reassessed—depending on state law.

It’s also important to remember that even if the property tax bill stays the same initially, inheriting a home can affect future tax liabilities if the property is later sold, used as a rental, or transferred again. Local homestead exemptions, senior or veteran discounts, and portability rules may also influence your ongoing tax obligations.

Before taking any action, it’s advisable to contact the local assessor’s office or a qualified property tax consultant in your jurisdiction. Heirs are also recommended to consult with a licensed estate attorney or tax advisor to understand the full implications, including any filing deadlines, exemption eligibility, or planning opportunities specific to inherited real estate.