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The Property Tax Inheritance Exclusion

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Summary

Ownership Changes Trigger Higher Tax Bills. Under California’s property tax system, the change in ownership of a property is an important event. When a property changes hands the taxes paid for the property typically increase—often substantially. Local government revenues increase in turn.

Special Rules for Inherited Properties. While most properties’ tax bills go up at the time of transfer, three decades ago the Legislature and voters created special rules for inherited properties. These rules essentially allow children (or grandchildren) to inherit their parent’s (or grandparent’s) lower property tax bill.

Inheritance Exclusion Benefits Many but Has Drawbacks. The decision to create an inherited property exclusion has been consequential. Hundreds of thousands of families have received tax relief under these rules. As a result, local government property tax collections have been reduced by a few billion dollars per year. Moreover, allowing children to inherit their parents’ lower property tax bill has

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