Updated August 16, 2026
The building gets reassessed to current market value, and the property tax bill resets with it. Proposition 19, in effect since February 2021, eliminated California's parent-child reassessment exclusion for everything except a primary residence the child then lives in. Under the old rules — Proposition 58 and Proposition 193 — parents could pass a rental or commercial property to their children with up to $1 million of assessed value shielded from reassessment. That shield is gone. An apartment building transferred to a child at death, by gift, or by sale is reassessed, and for a family holding a building on a decades-old Prop 13 basis, that is usually the single largest financial consequence of the transfer.
The gap is not the tax rate. It is the assessed value.
Prop 13 froze the basis at purchase and capped growth at 2% a year. A building bought in 1979 and never transferred can still be carrying an assessed value in the low hundreds of thousands.
Reassessment resets that to today's market value. The same building might be worth several million.
The rate applied is the Prop 13 1% base plus voter-approved debt service and direct assessments. In most LA City tax rate areas that lands modestly above 1.1%, and it is applied to the new, much larger number.
The practical effect is that a family whose annual property tax bill has been a rounding error in the operating statement can inherit a bill that is many multiples larger — landing on a rent-stabilized income stream that cannot be raised to absorb it. That is the specific squeeze Prop 19 created for LA multifamily families, and it is why we now see estate-driven sales that would not have happened under the old rules.
This is the part that gets conflated constantly, so it is worth separating cleanly. There are two different taxes and two different sets of rules.
Property tax basis — changed. Reassessment on transfer to children, as described above. This is county assessor territory.
Income tax basis — not changed. Property still receives a step-up in basis at death for income tax purposes. Heirs who inherit and then sell are generally measuring capital gain from the date-of-death value, not from what the parents paid. That is federal and state income tax territory, and Prop 19 did not touch it.
So the same building can be reassessed for property tax at the transfer while still delivering a step-up that largely erases the capital gain if the heirs sell. Owners frequently hear "reassessed" and assume the capital gains problem is also waiting for them. It usually is not.
Prop 19 preserved a narrow exclusion: a parent's primary residence transferred to a child who makes it their own primary residence, with a cap on the amount of value shielded. Two reasons that seldom rescues an apartment owner:
An apartment building is not the parent's primary residence. Even an owner-occupied unit in a multi-unit building is a partial case at best, and it does not shield the rental portion.
The child has to actually move in. The exclusion is conditioned on the property becoming the child's principal residence, with a filing deadline. An heir who intends to keep operating the building as a rental does not qualify.
Owners in this position generally end up weighing a small number of real options, and the right one is specific to the family, not to the property:
Hold and absorb the reassessment. Workable if the building's in-place income has enough headroom to carry a much larger tax line. On a deeply below-market rent-controlled rent roll, frequently it does not.
Sell during the parents' lifetime. Converts the asset while the family controls timing and price, but triggers capital gains and depreciation recapture without a step-up, and in LA City may trigger Measure ULA on the gross price.
Sell after death, using the step-up. Reassessment happens, but the income tax gain is largely reset, and the heirs are selling an asset they have not been carrying at a higher tax cost for long.
1031 exchange into something the family can actually operate. Defers the income tax, but does not avoid the property tax reassessment on the transfer itself.
Which of those is right is a conversation for a CPA and an estate attorney, not a broker. What a broker can tell you is what the building is genuinely worth today and what the market for it looks like — which is usually the missing number in the family's analysis.
If you are holding an LA apartment building on an old Prop 13 basis and planning to pass it to your children, model the post-reassessment tax bill against the building's actual net income before you assume "keep it in the family" is the conservative choice. For a lot of rent-stabilized buildings it is not conservative at all — it hands the next generation an asset whose largest expense line is about to multiply while its income is capped by ordinance. Run the number first. The answer sometimes changes the plan.
Does putting the building in a trust avoid Prop 19 reassessment?
Generally no. A revocable living trust is a probate and administration tool, not a property tax tool. The reassessment is triggered by the change in beneficial ownership when the property passes to the children, whether or not a trust is the vehicle. Certain legal entity structures behave differently, which is precisely why this is a question for an estate attorney rather than something to assume.
If my children inherit and sell right away, do they pay capital gains?
Usually very little. The step-up in basis at death generally resets the income tax basis to the date-of-death value, so a sale shortly afterward produces a small gain. The property tax reassessment still happens — the two are separate systems.
Was there a deadline I missed?
Proposition 19 took effect in February 2021, and there was a short window before that during which transfers under the old Prop 58 rules could still be completed. That window is closed. Transfers today are governed by the current rules.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
Thinking about selling? Get a no-obligation evaluation on your building.
Request Free Evaluation →