What will you owe in taxes when you sell an inherited Los Angeles home held in a trust? If the home was in a revocable living trust, it gets a step-up in basis to its fair market value on the date of death, which usually erases decades of capital gains and means you owe little or nothing on a near-term sale. You are only taxed on appreciation between the date of death and your sale price, minus selling costs. The two things that decide your bill are the type of trust (revocable vs. irrevocable) and whether you have a documented date-of-death appraisal.

You inherited a home in Hancock Park, the Hollywood Hills, or somewhere across the Westside, and it came to you through a trust. Now you are wondering what the IRS and the California Franchise Tax Board are going to take when you sell.

Here's the good news first: in most cases, far less than you fear. The step-up in basis is one of the most powerful tax breaks in the code, and for inherited LA real estate it can be worth seven figures. But it is not automatic, and a few specific details decide whether you keep that benefit or hand a large chunk of it to the government.

THE STEP-UP IS THE WHOLE GAME

When someone buys a home, their "basis" is roughly what they paid for it. Capital gains tax is charged on the difference between the sale price and that basis. So a home bought in 1985 for $300,000 and sold today for $3.2 million carries a built-in gain of nearly $2.9 million.

When you inherit a home, the basis resets to the fair market value on the date of death. That is the step-up. Decades of appreciation that built up during your parent's ownership simply disappear for tax purposes.

Here's what that looks like in practice:

• Parent buys a Hancock Park home in 1985 for $300,000 • Home is worth $3.2 million on the date of death • You inherit it and the basis steps up to $3.2 million • You sell 14 months later for $3.35 million • Your taxable gain is roughly $150,000 before selling costs, not $3 million

After commissions, transfer taxes, and other selling costs, that gain often shrinks to nearly nothing. The same home without a step-up would carry a gain north of $3 million, and in California that bill can be brutal.

California does not give long-term capital gains a lower rate. The state taxes the gain as ordinary income, up to 13.3% at the top. Stack that on top of the federal 20% long-term rate plus the 3.8% net investment income tax, and a high earner can pay well over a third of the gain. On a $3 million gain, that is more than a million dollars. The step-up is what stands between you and that number.

REVOCABLE VS. IRREVOCABLE: THIS DECIDES EVERYTHING

This is the part most people miss, and it is the single biggest factor in what you will owe.

A revocable living trust is the most common setup for LA homeowners. The person who created it could change or cancel it any time while alive, so the IRS still counts the home as part of their estate. That means it qualifies for the full step-up in basis at death. If your parents held the home in a standard living trust, you are almost certainly in good shape.

An irrevocable trust is different. If the home was placed into certain irrevocable trusts during the original owner's lifetime, the IRS may treat that transfer as a completed gift. In that case, you can inherit the property with the original low basis and no step-up, which means the entire built-up gain is back on the table.

Not every irrevocable trust loses the step-up. The rules turn on how the trust was drafted and whether the home stayed in the grantor's taxable estate. This is exactly the kind of detail you want a qualified estate attorney or CPA to confirm before you make any moves, because the difference between the two outcomes can be a million-dollar tax bill on a single luxury sale.

If you are not sure which kind of trust holds the home, that is your first question, not the listing price.

WHY THE DATE-OF-DEATH APPRAISAL MATTERS MORE THAN ANYTHING

The step-up is only as strong as your documentation of it.

Your new basis is the fair market value on the date of death. If the IRS ever questions your numbers, you need to prove what the home was worth that day, not a rough guess and not a Zestimate. The cleanest way to do that is a formal date-of-death appraisal from a qualified appraiser, ideally completed close to the date of death rather than reconstructed years later.

Why this is worth the few hundred to few thousand dollars it costs:

• It locks in the highest defensible basis, which lowers your taxable gain • It protects you if the IRS audits the valuation • It removes guesswork if you sell months or years after probate closes

Here is the trap. Your basis is frozen on the date of death, but homes in this market keep moving. If the home was worth $3.2 million the day your parent died and you sell 18 months later for $3.45 million, that $250,000 of appreciation is your taxable gain. A documented date-of-death value, plus your selling costs, is what keeps that number honest and as low as the law allows.

PROPERTY TAX IS A SEPARATE TRAP (PROP 19)

People constantly confuse two completely different taxes. The step-up is about income tax when you sell. Proposition 19 is about property tax if you keep the home.

Under Prop 19, when a child inherits a parent's home, the low Prop 13 property tax basis only carries over if the child moves in and makes it their primary residence within one year, and even then there is a value cap (around $1.04 million above the parent's assessed value for transfers in this window). If you keep an inherited LA luxury home as a rental, a second home, or a vacation property, it gets reassessed to current market value, and the property tax bill can multiply overnight.

For many heirs, this is the quiet reason selling makes more sense than holding. If you are not going to live in it, the property tax math often pushes hard toward a sale, while the step-up means you can sell with little to no capital gains hit. The two rules point in the same direction.

WHAT YOU'LL ACTUALLY OWE WHEN YOU SELL

Pulling it together, here is the realistic picture for a typical inherited LA home sold within a year or two of inheriting:

• Capital gains: usually small, because the step-up resets your basis to date-of-death value • You are taxed only on appreciation after the date of death, minus selling costs • Selling costs (agent commissions, escrow, title, transfer taxes, and Measure ULA on sales above the city thresholds) further reduce or wipe out the gain • Property tax is irrelevant once you sell, but very relevant if you hold

Every one of these numbers depends on your specific home, your trust structure, and your timing. This is exactly the kind of situation we walk our clients through before anything goes on the market, because the right sequence (confirm the trust type, get the date-of-death appraisal, then run the net sheet) is what protects the money.

A quick honest qualifier: we are real estate advisors, not tax attorneys. The numbers and rules here are accurate as of mid-2026, but your exact outcome should be confirmed with a CPA and an estate attorney. What we can do is run the sale side with precision and coordinate with your tax team so nothing falls through the cracks.

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FREQUENTLY ASKED QUESTIONS ────────────────────────────────────────────────

Do I pay capital gains tax on a home I inherited in a trust?

Usually very little, if the home was in a revocable living trust. The basis steps up to the fair market value on the date of death, so you are only taxed on appreciation between that date and your sale price, minus selling costs. A home sold soon after inheriting often carries almost no taxable gain.

Does an irrevocable trust still get the step-up in basis?

Sometimes, but not always. If the home was transferred into certain irrevocable trusts during the original owner's lifetime and treated as a completed gift, it may keep the original low basis with no step-up, which means a much larger taxable gain. Whether the step-up applies depends on how the trust was drafted, so confirm it with an estate attorney or CPA before selling.

How do I prove the home's value on the date of death?

Get a formal date-of-death appraisal from a qualified appraiser, ideally completed close to the date of death. This documents your stepped-up basis, protects you in an audit, and removes guesswork if you sell months or years later.

Is the step-up in basis the same as Proposition 19?

No. The step-up is an income tax rule that lowers your capital gains when you sell. Proposition 19 is a property tax rule that decides whether you keep the low assessed value when you hold the home. If you do not move into an inherited LA home within a year, Prop 19 generally triggers a reassessment to current market value.

Should I sell the inherited home or keep it?

It depends on whether you will live in it. If you keep an inherited luxury home you will not occupy, Prop 19 often reassesses it to current market value and the property taxes jump sharply. Meanwhile the step-up lets you sell with little to no capital gains, which is why many heirs find selling is the cleaner financial move.

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Selling an inherited home is part numbers and part timing, and the order you do things in decides what you keep. If you'd like the same kind of market read we share with our clients every month, sign up for Real Brief (https://ramosabbotthomes.com/newsletter/), our monthly insights into the LA luxury real estate market, delivered straight to your inbox. ────────────────────────────────────────────────

Abbott and Alexis Ramos are the founders of Ramos & Abbott Homes, a luxury real estate team with Sotheby's International Realty in Beverly Hills. Together they specialize in architectural and historic homes, new construction, and income properties across West Hollywood, Hancock Park, Hollywood Hills, Beverly Hills, Fairfax District, Sunset Square, and Spaulding Square.