Gift Your Home to Your Kids Now, or Hold Until Death? What the OBBBA Changed for West Valley Homeowners

Should West Valley homeowners gift their home now or hold it until death?

For most West Valley homeowners, holding your home until death is the better move for your heirs — by a significant margin. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, raised the federal estate tax exemption to $15 million per person ($30 million for married couples), well above what most San Fernando Valley estates are worth. That removed the main reason homeowners used to gift property during their lifetime. Meanwhile, the step-up in basis — which applies only when property is inherited at death, not when it's gifted — was preserved, making it one of the most powerful tax strategies available to SFV homeowners with appreciated real estate.

By Jason Franklin | October 8, 2026

This question keeps coming up at my listing appointments, especially when I'm working with long-term homeowners in West Hills, Woodland Hills, and Calabasas who've watched their home double or triple in value over the past two decades.

The conversation usually goes something like this: "Our financial advisor told us years ago we should gift the house to the kids to keep it out of our estate. Does that still make sense?"

For most West Valley families, the honest answer today is no — and the OBBBA changed the math in a significant way.

Why People Gifted Real Estate in the First Place

Before 2025, estate planning attorneys and financial advisors often recommended transferring appreciated real estate to the next generation during the owner's lifetime. The reasoning was straightforward: keeping large assets outside your taxable estate reduced the exposure to federal estate taxes.

When the estate tax exemption was lower — around $3.5 million a decade ago — a home worth $1.5 million could actually push a family estate over the threshold. Gifting the house removed it from the taxable estate and potentially saved a significant tax bill.

That calculus has changed dramatically.

What the OBBBA Did — and Didn't — Change

The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently raised the federal estate tax exemption to $15 million per individual. For married couples, that's $30 million combined.

Think about what that means for most West Valley homeowners. If your home in West Hills is worth $1.8 million and you have $2 million in retirement accounts and other assets, your total estate is roughly $3.8 million — less than a quarter of the individual exemption. You're not exposed to estate taxes regardless of whether you gift the house or not.

California has no state estate tax and no state inheritance tax. The only estate tax that applies is federal — and under the OBBBA, it simply doesn't apply to most families in this market.

The thing the OBBBA didn't change is equally important: the step-up in basis rule for inherited property was preserved.

The Real Cost of Gifting Your Home During Life

When you gift a home to your children while you're alive, they don't get a new tax basis at fair market value. They inherit your original adjusted cost basis — what you paid, adjusted for the cost of improvements over the years. This is called a carryover basis.

Here's what that looks like in practice.

A couple bought their West Hills home in 2002 for $550,000. They've put in about $150,000 in improvements over the years. Their adjusted basis is $700,000. Today the home is worth $1,600,000.

If they gift the home to their adult child now:

• The child's basis: $700,000 (carried over from the parents)
• If the child sells at $1,600,000: $900,000 taxable gain
• California + federal capital gains at the top bracket: approximately 37%
• Tax owed: roughly $333,000

If they hold the home until death:

• The child's basis at inheritance: $1,600,000 (stepped up to fair market value at date of death)
• If the child sells at $1,600,000: $0 taxable gain
• Tax owed: $0

That's a $333,000 swing — purely from the timing of the transfer.

And that's assuming the home doesn't appreciate further. If it's worth $2 million when the parents pass, the step-up erases the entire gain on $1.3 million of appreciation.

The California Community Property Advantage

If you're married and live in California, there's an additional reason to think carefully about title-holding before you make any transfer decisions.

California is a community property state. Property acquired during marriage is generally considered community property. When either spouse dies, both halves of community property get stepped up to current fair market value — not just the deceased spouse's half.

Compare that to property held as joint tenancy: only the deceased spouse's half gets the step-up. The surviving spouse retains their original basis on their half.

For a married couple holding their Woodland Hills home as community property worth $1.5 million:

• First spouse dies → entire home steps up to $1,500,000
• Surviving spouse (or heir) sells at $1,500,000 → $0 capital gains on any pre-death appreciation

If the same home were held as joint tenancy, only one-half would step up at the first death — leaving the surviving spouse with a blended basis on their half that could create a significant gain down the road.

I cover this in more detail in my post on inheriting a home in the San Fernando Valley, which walks through what heirs should understand before they decide whether to sell, hold, or rent inherited property.

What About Prop 19 and Property Taxes?

I want to be clear about one thing: Prop 19 is a property tax question, not an income tax question. The two are separate.

Proposition 19, effective February 2021, restricted the parent-to-child property tax exclusion that used to allow parents to pass any property — including vacation homes and rentals — to their children without triggering a property tax reassessment. Under Prop 19, the exclusion now applies only to a child's primary residence, and even then it's capped at the parent's assessed value plus $1 million.

This matters for property taxes. But Prop 19 has nothing to do with capital gains. Whether you gift the home or leave it at death, Prop 19's reassessment rules apply the same way.

If you're thinking about passing a Woodland Hills investment property or second home to your children, they will face a full property tax reassessment at current market value regardless of how you structure the transfer. That's a real cost to factor in — but it's separate from the capital gains step-up question.

When Gifting Real Estate Still Makes Sense

There are situations where gifting property during your lifetime is the right call. I'm not an estate attorney or CPA, and this isn't legal or tax advice — but here are the scenarios where the calculus changes:

• Your estate exceeds $15 million. If you're in this bracket, removing appreciating assets from your estate during your lifetime can reduce future estate tax exposure. Gifting removes the future appreciation, not just today's value.
• Medi-Cal planning. If there's a possibility of needing long-term nursing care, some families explore transferring assets to protect them — but California has reinstated a 30-month lookback period for Medi-Cal qualification, so this requires careful timing and professional guidance.
• Non-tax reasons. Sometimes it's about family dynamics, not taxes — a parent who wants to see the child benefit during their lifetime, or a situation where the child needs the asset now for business or housing reasons.

Outside of these specific situations, most West Valley homeowners I talk to are better off holding the appreciated property and letting the step-up do the work.

If you're thinking about holding real estate as an investment strategy rather than estate planning, my post on 1031 exchanges in Los Angeles County covers how investors in this market are deferring capital gains while repositioning assets — another strategy the OBBBA left completely untouched.

The Decision Most Families Are Getting Wrong Right Now

What I see more often than anything else is families operating on advice that was accurate five or ten years ago, before the OBBBA and before Prop 19 changed the landscape.

Someone got advice to "get the house out of the estate" when the exemption was $3.5 million. They never updated the plan. Now they're preparing to gift a home with $1.2 million in appreciation — and potentially handing their kids a $440,000 capital gains bill they didn't have to create.

The OBBBA made this one of the most important real estate conversations in California right now. If your estate planning documents were written more than a few years ago and include any language about gifting your real estate, it's worth having your attorney and CPA review them in light of the new exemption levels.

From a real estate standpoint, the question of when and how you transfer your home is one I can help you think through — especially if the property is something you're considering selling or refinancing in the next few years. Knowing what the transfer strategy looks like affects how we price and time the transaction.

If you're in this situation and want to think through it together, reach out. I'm happy to walk through the real estate side of the equation with you, and connect you with the estate planning professionals who can handle the legal and tax structure.

Frequently Asked Questions

What did the OBBBA change about gifting a home to your children?

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently raised the federal estate tax exemption to $15 million per person ($30 million for married couples). This means most homeowners no longer need to gift property during their lifetime to avoid estate taxes — their estate falls well below the threshold. The step-up in basis for inherited property was preserved, making it more advantageous for most families to hold appreciated real estate until death rather than gift it.

What is the step-up in basis and why does it matter for West Valley homeowners?

A step-up in basis means your heirs' cost basis resets to the home's fair market value at the date of your death — not what you originally paid. For a homeowner who bought in West Hills for $600,000 and whose home is now worth $1,500,000, a step-up wipes out $900,000 in taxable gain. If your heirs sell at that inherited value, they owe zero capital gains taxes on all that appreciation. Gifting the home during your lifetime eliminates this benefit entirely.

Does gifting a home to your children trigger California capital gains taxes?

Not at the time of the gift — but it creates a carryover basis problem. Your children inherit your original cost basis, and when they eventually sell, they'll owe capital gains on the full appreciation during your ownership plus any appreciation since the gift. In California, combined state and federal capital gains rates can reach 37% or more for higher earners — meaning a gift that avoids no estate tax could generate a very large tax bill for your kids down the road.

Does California have an estate tax?

No. California has no state estate tax and no state inheritance tax. The only estate tax West Valley homeowners need to consider is the federal estate tax, and under the OBBBA, the exemption is $15 million per person ($30 million for a married couple). Estates below those thresholds owe nothing — which covers nearly all residential real estate owners in the San Fernando Valley.

What is the California community property advantage for inherited real estate?

In California, property acquired during marriage is generally community property. When either spouse dies, both halves of community property get stepped up to current market value — not just the deceased spouse's share. This is a significant advantage over joint tenancy or separate property: for a married couple, it can double the tax savings at death. If you hold title as joint tenancy with your spouse, converting to community property (with community property right of survivorship) before death could result in substantial tax savings for your heirs.

About Jason Franklin
Jason Franklin is a licensed real estate broker and REALTOR® with The Dinsky Team at Equity Union in Sherman Oaks, California. A San Fernando Valley native licensed since 2016, he has closed over $50 million in career sales and ranks among the top 4% of local producers, specializing in luxury listings, investment properties, value-add flips, and seller representation across the West San Fernando Valley and Conejo Valley. Connect with Jason at jasonfranklinre.com.