It sounds like a simple shortcut. Mom or Dad signs a quitclaim deed, the house goes to the kids, and the family skips probate. No money changes hands, so no tax, right?
Not quite. In California, a quitclaim deed can be the right tool in some situations. But for many families, giving away a home during life instead of passing it at death can mean a much larger tax bill when the heirs finally sell. Here is what homeowners and heirs should understand before anyone signs.
What a Quitclaim Deed Actually Does
A quitclaim deed transfers whatever ownership interest the signer has in a property, with no promises about the title. When a parent quitclaims a home to a child and nothing is paid in return, the IRS generally treats it as a gift, not a sale.
That is why there is usually no capital gains tax at the moment of transfer. Capital gains tax comes from selling. The tax question shows up later, when the person who received the home decides to sell it.
The Big Difference: Carryover Basis vs. Stepped-Up Basis
Your “basis” is roughly what the home cost, plus qualifying improvements. When you sell, your taxable gain is generally the sale price (minus selling costs) minus your basis.
- Gift during life (like a quitclaim): When the home’s value is higher than what the parent paid, the child generally takes over the parent’s original basis. This is called carryover basis. If the parent bought the home decades ago, that number may be very low.
- Inherited at death (through a will, trust, or probate): The heir’s basis is generally the home’s fair market value on the date of death. This is often called a stepped-up basis.
Here is a simple example. A parent bought a home years ago for $150,000 and it is now worth $800,000. If the parent gifts it by quitclaim, the child’s basis may be around $150,000, so a sale near $800,000 could mean roughly $650,000 of gain. If the child inherits it instead, the basis may step up to about $800,000, and a quick sale could produce little or no gain. Real numbers depend on improvements, selling costs, and other details, so treat this as an illustration only.
One more wrinkle: if the home is worth less than the parent’s basis at the time of the gift, special rules apply for figuring a loss. Your tax professional can walk you through that.
The Home Sale Exclusion Does Not Simply Transfer
Many people have heard that you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) when you sell your home. That is true, but the person selling generally must have owned and lived in the home as their main residence for at least two of the five years before the sale.
For a child who received the home by quitclaim, the parent’s years of living there generally do not count toward the child’s own residence test. A child who never moved in, or who rents the house out, may not qualify at all.
The Holding Period Usually Carries Over
There is one piece of good news. With a gift, the recipient’s holding period generally includes the time the parent owned the property. That usually means a later sale is taxed at long-term capital gains rates rather than short-term rates. Inherited property is also generally treated as long-term.
Gift Tax Paperwork
For 2025 and 2026, the federal annual gift exclusion is $19,000 per recipient. A home is almost always worth more than that, so the parent giving it generally must file IRS Form 709, a gift tax return. In most cases this reduces the parent’s lifetime exemption rather than creating tax owed right away. For 2026, the lifetime basic exclusion is $15 million per person.
California Property Tax: Proposition 19
Federal income tax is only part of the picture. In California, a transfer from parent to child can trigger a property tax reassessment. Under Proposition 19 (effective February 16, 2021), the parent-child exclusion is limited to a family home that was the parent’s principal residence and becomes the child’s principal residence, or a family farm, and the exclusion has a value cap. A child who receives the home must file for the homeowners’ exemption within one year, and a claim form with the County Assessor. A rental or a home the child won’t live in generally does not qualify. That rule applies whether the transfer happens by quitclaim during life or by inheritance, so it is worth planning for either way.
Other Ways California Families Pass Down a Home
A quitclaim is not the only way to keep a home out of probate. Common alternatives include:
- A revocable living trust. The home passes to beneficiaries at death without a court probate, and heirs generally still receive a stepped-up basis.
- A revocable transfer on death (TOD) deed. California law (Probate Code sections 5600 and following) allows a homeowner to name a beneficiary who receives the property at death. The deed must be signed and dated, signed by two witnesses, and acknowledged before a notary (Probate Code section 5624), and it must be recorded within 60 days after it is notarized (section 5626). It can be revoked during life. Because the transfer happens at death, it generally keeps the step-up.
- Probate. Sometimes probate is unavoidable or even the best path. The home still generally gets a stepped-up basis, and the court process gives buyers clear title.
Each option has trade-offs, including creditor issues, control, and eligibility. A quitclaim also gives up the parent’s control of the home immediately, and it can expose the property to the child’s debts, divorce, or lawsuits.
Talk to Your Attorney and CPA First
This article is general information, not legal or tax advice. Every family’s situation is different. Before anyone signs a deed, talk with a California estate planning attorney and a CPA who can run the numbers for your family.
Selling an Inherited or Trust Home in Southern California?
If your family has already inherited a home, or you’re a trustee or executor deciding what to do next, we’re here to help. At SoCal Probate Homes, we focus on probate and trust sales across San Diego, Riverside, and the Coachella Valley. Contact us to learn how the process works and request a no-pressure conversation about your options.
Brittan Anderson, REALTOR®, DRE #01846927 | LPT Realty, Inc., DRE #02248983