Happy Saturday, Housing Heroes,

One of the questions I hear most often from clients is: “What happens to my rental properties when I pass them down to my kids?”

That’s where Prop 19 comes in. It’s been on the books for a few years, but it continues to surprise property owners with how it affects rental real estate. Let’s walk through what it means for you.

Reassessment to Market Value

Here’s the tough part:

• If your children inherit a rental property and don’t move in within one year, the property gets reassessed at today’s market value.
• That means your heirs will face a much higher property tax bill - sometimes so high it forces them to sell.

Even if they do move in, the benefit is capped. Only your current taxable value plus $1 million (indexed for inflation) is shielded. In most California markets, especially San Diego and Orange County, that cushion disappears quickly.

Bottom line: Without planning, it’s very hard for families to keep rental properties long-term.

Why Rental Property Owners Feel the Pinch

Prop 19 gave homeowners 55+ a nice perk: they can move anywhere in California and carry their property tax basis with them (up to three times).

But here’s the kicker for us as rental property owners:

• That benefit doesn’t apply to rentals.
• If you sell one rental and buy another, you start fresh at current market tax rates.
• When your heirs inherit your rentals, they’ll almost always face a reassessment—unless they move in and live there themselves.

Planning Tools for Owners

There’s no one-size-fits-all solution, but here are strategies I’ve seen investors use:

• Family LLCs: Gradually transfer ownership shares while you’re alive. This may soften the tax hit down the road.
• Trusts: Certain trust structures can provide flexibility, though they aren’t bulletproof.
• Act Early: Waiting until later limits your options. Starting sooner gives you and your family more tools.

The Silver Lining: Capital Gains

One major advantage remains: heirs still receive a stepped-up basis for federal capital gains.

That means if they sell the property after inheriting it, the taxable gain is based on its market value at the time of inheritance, not what you originally paid.

Example:

• Original cost basis: $300,000
• Market value at inheritance: $3,000,000
• New basis: $3,000,000
  👉 That shields about $2.7M in appreciation from capital gains tax.

The Bottom Line

Prop 19 makes it harder to keep investment properties in the family - but not impossible. The key is planning ahead, and that usually means bringing in legal and tax experts before making big decisions.

As a property manager, I want my clients to know the rules so you can protect both your investments and your family’s future.

Disclaimer: This newsletter is for informational purposes only and does not constitute legal or tax advice. Please consult with a professional advisor for guidance specific to your situation.

How Good Life Property Management Streamlines Rental Management | Complete Process Explained

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Steve Welty CEO @ Good Life Property Management DRE #01744610 ​​​​

5252 Balboa Ave #704, San Diego, California 92117
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