Your parents bought their Morgan Hill home in 1994 for $385,000. They still live there, still pay property tax on an assessed value that's crept up 2% a year under Prop 13 to about $665,000 in 2026. Their tax bill is roughly $7,600 per year.
When they pass or gift the home to you, one of two things happens. If you play it right, you keep paying the $7,600. If you miss a deadline or rent it out, your tax bill jumps to roughly $17,100 overnight. That $9,500 per year delta is what California Prop 19 (passed in 2020) put on the line for every heir in the state. And there are three hard deadlines almost nobody knows about.
This is a straight explainer for Santa Clara County. If you want the numbers for your specific situation, use our Property Tax and Prop 19 Calculator, scenario "Inheriting from a parent," for a 60-second estimate. Otherwise keep reading.
The old rule (pre-Prop 19, before Feb 16 2021)
For decades, Prop 58 let parents transfer an unlimited amount of real estate to their kids without triggering reassessment. You could inherit the family home and three rental properties, rent them all out, and keep the original 1970s tax base on everything.
That rule is gone. Prop 19 replaced it on February 16, 2021.
The new rule (Prop 19, in effect now)
Under Prop 19, when a parent transfers real estate to a child, the child keeps the parent's low Prop 13 base only if three conditions are met:
The property was the parent's primary residence. Vacation homes, rental properties, and second homes don't qualify anymore. They get reassessed to current market value immediately.
The child makes it their primary residence within 12 months of the transfer. One of the heirs has to actually live there. If multiple siblings inherit, only one needs to live there, but that sibling must continue to occupy the home. If they move out, another sibling has 12 months to move in before the exclusion lapses.
The child files the paperwork on time. Three separate deadlines apply (more on those below).
If all three conditions are met, you get the parent's assessed value plus an indexed "exclusion amount." For transfers between February 16 2025 and February 15 2027, that exclusion is $1,044,586. After Feb 15 2027, the California Board of Equalization re-indexes it.
The math, in plain English
Let's run your parents' Morgan Hill home through the Prop 19 formula:
Parent's current assessed value: $665,000
Home's current market value: $1,500,000
Exclusion cap: $1,044,586
First, calculate the "maximum excluded value": parent's assessed value + the $1,044,586 cap = $1,709,586.
Is the home's current market value ($1,500,000) below that cap? Yes. So the full parent's base transfers. Your new assessed value is $665,000 (their old base). Your new annual tax is roughly $665,000 × 1.14% = $7,581 per year.
If the home were instead worth $2 million, the market value would exceed the $1,709,586 cap by $290,414. That overage gets added to your new assessed value, bumping it to $955,414 (parent's $665,000 + $290,414 excess). Your tax bill becomes $955,414 × 1.14% = $10,892 per year.
Both scenarios are still dramatically better than paying the full $17,100-$22,800 you'd owe if the home were reassessed to market. Run your own numbers in the Property Tax and Prop 19 Calculator.
Scenario: you inherit but rent it out
This is the big Prop 19 trap. Under the old rules, you could inherit and rent indefinitely while keeping the low tax base. Under Prop 19, if you don't make the home your primary residence within 12 months, the entire exclusion falls away. The home gets reassessed to full market value.
On a $1.5 million Morgan Hill home, that's $17,100 per year instead of $7,600. You'd also owe a supplemental tax bill for the period between the transfer date and the next July 1 lien date.
There are a few workarounds, but they all involve talking to an estate attorney before the transfer happens:
Sell the home instead. Your heir-level cost basis gets a step-up to market value, which can wipe out capital gains entirely. Paired with California's $250K/$500K Section 121 exclusion, this often nets more than holding the home as a rental.
1031 exchange into a like-kind investment property. Defers the capital gains but doesn't help with the Prop 19 reassessment.
Installment sale. Spreads the capital gains hit over multiple tax years.
If you're weighing sell vs. rent vs. keep, run the numbers through our Net Proceeds Calculator first to see what selling would actually net you.
The three deadlines almost nobody knows
Miss any of these and Prop 19 falls apart:
12-month residency. You (or a sibling) must establish the home as your primary residence within 1 year of the transfer. The clock starts on the date of death or the date of the gift deed.
1-year homeowner's exemption filing. File the basic homeowner's exemption with the Santa Clara County Assessor within 1 year of moving in. Without this, the assessor doesn't know you're claiming primary residence status.
3-year BOE-19-P filing. The parent-child exclusion form (Board of Equalization Form 19-P) must be filed within 3 years of the transfer. For grandparent-to-grandchild transfers with no living parent in between, it's BOE-19-G.
The 3-year BOE-19-P deadline is the one that trips up most families. The will gets probated, the house gets inherited, nobody thinks to file anything with the assessor because "we didn't have to when Grandma did it." Three years go by. The assessor reassesses to market value. You owe back taxes.
How to actually do this
If you think you're going to inherit a home in Morgan Hill, Gilroy, or San Martin, the single most valuable move is to have a conversation with an estate attorney before your parents pass or gift the property. Not after. They can:
Confirm the home qualifies as a primary residence under Prop 19
Structure the transfer (will, trust, gift deed) to avoid tripping other rules
Calendar the three filing deadlines from the transfer date
Compare "inherit and keep" vs "inherit and sell" with the step-up in basis math
Flag whether a Prop 19 + 1031 exchange combo makes sense if there are multiple properties
Our partner estate attorney in the South Valley offers a free 20-minute consult through the Property Tax and Prop 19 Calculator. Pick scenario "Inheriting from a parent" and submit the form.
The fast version
Run the numbers, flag the deadlines, talk to an attorney. The gap between "did it right" and "missed a deadline" can be $10,000 per year for the rest of your ownership of the home. Over 20 years that's a quarter million dollars.
Sheena and Ryan cover Morgan Hill, Gilroy, and San Martin in a free weekly newsletter. Subscribe here.