Why It Is Better to Inherit a San Diego Home — Not Be Deeded It Beforehand
Why It’s Better to Inherit a San Diego Home — Not Be Deeded It Beforehand
Many San Diego families want to make sure their home passes smoothly to loved ones — but how you transfer ownership can mean the difference between zero taxes and a six-figure tax bill.
Here’s why inheriting a home is usually preferable to being deeded one while someone is still alive.
1. Inheriting = “Step-Up” in Basis (Major Tax Savings)
When you inherit a property, the IRS lets you reset your “cost basis” to the home’s fair market value at the date of death. That means your taxable gain starts fresh, based on today’s value — not what your parents originally paid decades ago.
Example:
• Parents bought their San Diego home for $100,000 in the 1980s.
• Today it’s worth $1,000,000.
If they deed the home to you now (while alive) and you later sell it for $1,000,000?
• You’d owe capital-gains tax on the $900,000 profit ($1,000,000 – $100,000).
• Federal long-term capital-gains tax ˜ 20%.
• California state income tax can add another 9–13.3%.
Together, that’s up to 30% or more — roughly $270,000 in taxes.
If you inherit the home after they pass away?
• Your new “cost basis” becomes $1,000,000.
• Sell it for $1,000,000, and your gain is $0 — meaning no capital-gains tax due.
Tax savings: Potentially $250,000 – $300,000+ in this example.
2. Deeding Now Can Create Hidden Tax Traps
Transferring title before death often causes more problems than it solves:
- Gift-tax reporting: Giving part or all of a home is treated as a taxable gift.
- Loss of property-tax protections: Under California’s Proposition 19, property-tax assessments can increase sharply when the home is transferred.
- Loss of full homeowner’s exclusion: The giver may lose part of their capital-gains exclusion if the property is no longer their primary residence.
- Family disputes: A Shared title can complicate future sales, refinances, or estate division.
Bottom line: Trying to “save time” now can easily cost your heirs hundreds of thousands later.
3. Use a Trust to Avoid Probate Entirely
A revocable living trust is the best way to transfer property efficiently and privately.
When a home is owned in a trust:
- It avoids probate (saving months of court delays and $20K – $40K in legal fees).
- Heirs still receive the step-up in basis, keeping capital-gains taxes low.
- The process is private — no public probate records or filings.
Takeaway for San Diego Homeowners
If your San Diego home has appreciated from $100,000 to $1,000,000 or more, take time to plan correctly. Before changing the title, consult your CPA, tax professional, or estate-planning attorney to understand the best way to minimize both federal and California state taxes. And if you’d like to know what your home is worth today — or what buyers in my network would pay — call or text me anytime at 619-846-1244.
George Lorimer 619-846-1244
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