If you give it to them while you're alive
They generally take your basis, the same low number you've had for decades.1
Part 1
The capital gains trap
Your basis is roughly what you paid for your home plus improvements. When a home is sold, tax is figured on the gain above that basis.
How your kids receive the home changes their basis:
If they inherit it at your death
Their basis is generally reset to the home's value on the date of death, often called a "step-up."1
A hypothetical example
| Gifted while alive | Inherited at death | |
|---|---|---|
| Parents paid (plus improvements) | $150,000 | $150,000 |
| Value when kids sell | $1,200,000 | $1,200,000 |
| Kids' basis | $150,000 | $1,200,000 |
| Taxable gain on the sale | $1,050,000 | $0 |
Hypothetical and simplified. Assumes the sale happens right after the death at the same value, and ignores selling costs. Actual tax depends on federal and California rates, exclusions and each child's situation.
A gift of a home worth more than the annual exclusion, $19,000 per child for 2026, also generally requires the parents to file a federal gift tax return, even if no tax is owed.2
Part 2
California property tax: Prop 19
Since February 2021, a home that passes from parents to children is generally reassessed to market value unless it qualifies for the parent-child exclusion under Proposition 19.3
- The home must have been the parent's principal residence, and the child must make it their principal residence within one year.3
- Even then, the protected value is capped: for transfers from February 16, 2025 through February 15, 2027, the old taxable value plus $1,044,586.4 Value above that is added to the assessment.
- A rental or vacation home passed to children generally gets reassessed.
This applies whether the home passes by gift or at death, so Prop 19 alone isn't a reason to gift early. It's a reason to plan with real numbers.
Part 3
What you give up
Once your children are on the title, the home is partly theirs. That can mean:
- You need their signatures to sell or refinance.
- Their creditors, a lawsuit, a bankruptcy or a divorce could reach their share.
- If a child dies before you, their share may pass to their spouse or heirs, not back to you.
- Undoing the gift later can be hard and may have tax consequences of its own.
Part 4
What families often do instead
The goal behind the shortcut, skipping probate, can usually be met without the trade-offs above.
A revocable living trust
You keep full control while you're alive. At death, your successor trustee transfers the home to your children without probate, and the home is generally treated as inherited for basis purposes.
Helps withProbate, privacy and planning for incapacity.
Watch forAttorney cost to set up, and the deed must actually be put in the trust.
A transfer-on-death deed
California allows a revocable deed that passes your home at death to the people you name.5
Helps withA simpler, lower-cost way to keep a home out of probate.
Watch forStrict signing and recording rules, no help with incapacity, and a law currently set to expire in 2032.5
Read more in Will or Trust? and What Is Probate in California?
Thinking about how your home should pass to your kids?
A short conversation can map how your home is titled today and what that means for taxes and probate, so you know what to ask an estate planning attorney.
Book a time with Kevin Kevin is not an attorney or tax preparer. Deeds and trusts should be prepared by a licensed California attorney.Sources
- IRS, Publication 551, Basis of Assets ("Property Received as a Gift" and "Inherited Property"). Accessed November 10, 2026.
- IRS, "IRS releases tax inflation adjustments for tax year 2026" (annual exclusion $19,000) and About Form 709. Accessed November 10, 2026.
- California State Board of Equalization, Proposition 19 and Publication 800-1. Accessed November 10, 2026.
- California State Board of Equalization, Letter to Assessors 2025/009 and news release NR 25-02. Accessed November 10, 2026.
- California Probate Code §5614 and §5600. Accessed November 10, 2026.