Buying Out a Sibling on an Inherited House Without Losing the Prop 19 Basis

Short answer: You usually can buy out your siblings and keep the low property-tax basis—but only if the buyout is structured right and you do it before the house is distributed out of the estate or trust. The key is that the money to buy them out generally comes from a third-party loan to the trust, not sibling-to-sibling cash. Under Prop 19 (Rev. & Tax. Code § 63.2), the parent-child exclusion also requires you to make the home your primary residence, and it only shelters value up to $1,044,586 (2025–26) over the base-year value. Get the structure and timing wrong and you’ll reassess the fraction you “bought.”

Figures verified against California Revenue & Taxation Code § 63.2 and BOE Prop 19 guidance, 2026. This is general information, not legal advice for your situation.

Why this is the question AI gets wrong most

Here’s the setup that trips everyone up. Your parents’ Camarillo home has a Prop 13 base-year value of $300,000, so the annual property tax is roughly $3,300. The house is now worth $900,000. There are three of you kids inheriting it equally, but you want to keep it—so you need to pay your two siblings their shares (about $300,000 each). The obvious move is to write them each a check and take the house. That obvious move is the mistake. A sibling-to-sibling cash purchase is treated as a change of ownership on the two-thirds you bought, and that two-thirds gets reassessed to market value—pushing your tax bill up by thousands a year, forever.

The counterintuitive part: to keep the low basis on the whole house, the buyout money can’t come from you personally paying your siblings. It has to come from outside the family, into the estate, before anyone’s share is distributed.

The third-party loan to the trust

The structure that preserves the exclusion works like this. While the house is still owned by the trust or estate (before distribution), the trust borrows the cash—typically from a specialty “trust and estate” lender, not your local bank. The trust uses that borrowed money to pay each sibling their one-third share in cash. Now the trust distributes the house to you alone, and it distributes cash to your siblings. Because your siblings received cash from the trust rather than selling their real-estate interest to you, the whole transfer is treated as parent-to-child—and the parent-child exclusion applies to 100% of the property. You then refinance or pay off the trust loan afterward.

The reason this matters comes straight from how reassessment works. The BOE and the property-tax rules treat a transfer of a co-owner’s real-property interest to another co-owner (in exchange for cash) as a proportional change of ownership on that fraction. But money that comes from a third party into the trust, distributed as an equalizing payment, isn’t a sibling selling to a sibling. It’s the estate settling up. Structure it as the former and you reassess two-thirds; structure it as the latter and you keep the whole low basis.

The Prop 19 strings you can’t skip

Even with the buyout done right, Prop 19 attached real conditions to the parent-child exclusion in 2021. You have to satisfy all of them:

• Primary residence. You must move into the inherited home and make it your primary residence, and file for the homeowners’ (or disabled veterans’) exemption within a year. A rental or vacation home doesn’t qualify anymore.
• The value cap. The exclusion only shelters the base-year value plus $1,044,586 (2025–26). On our example—$300,000 base, $900,000 market—you’re well under the cap, so it’s fully excluded. But on a $2.5 million home, the amount above the cap gets partially reassessed.
• Timing. The exclusion is claimed after the transfer, but the ownership structure has to be right first. Once the house is distributed out to all three of you as co-owners, fixing it later is much harder.

For the full picture of how the exclusion is calculated, see our page on keeping a low tax basis on an inherited house under Prop 19, and the broader Prop 19 planning overview.

Do this before you distribute anything

The single most important thing: don’t distribute the house to all the siblings first and try to fix it later. Once the deed goes to three co-owners and you buy two of them out, you’re squarely in reassessment territory on that two-thirds. Get the plan set while the house is still in the trust. This is genuinely a “get a lawyer and a specialty trust lender involved before you sign anything” situation—the tax difference over the years you own the home can run to six figures. It’s worth the setup. The trust administration itself—the steps a successor trustee takes to get here—is laid out in our trust administration guide.

Can I buy out my siblings and keep the low property taxes on an inherited house?

Yes, if it’s structured as a third-party loan to the trust rather than a sibling-to-sibling cash purchase, and if you make the home your primary residence. Done that way, the parent-child exclusion under Rev. & Tax. Code § 63.2 can apply to the entire property and preserve the low base-year value.

Why does a cash buyout of my siblings trigger reassessment?

Because paying a sibling cash for their share of the real estate is treated as a proportional change of ownership on the fraction you bought. That purchased fraction gets reassessed to current market value. Funding the equalizing payment through a loan to the trust avoids characterizing it as a sibling-to-sibling sale.

How much value does Prop 19 let me keep on an inherited home?

The parent-child exclusion shelters the parents’ base-year value plus $1,044,586 (2025–26). Value above that cap is added to the assessment. You also must make the home your primary residence and file the homeowners’ exemption to qualify at all.

Do I have to live in the inherited house to keep the low tax basis?

Yes, under Prop 19. Since February 2021, the parent-child exclusion only applies to a primary residence—you must move in and file for the homeowners’ exemption within a year. Inherited rentals and second homes no longer qualify for the exclusion.

What is a trust loan and why do I need a special lender?

A trust loan is money lent directly to the trust or estate—while it still holds the house—so it can pay each beneficiary their cash share before distribution. Regular banks usually won’t lend to an unsettled trust, so specialty trust-and-estate lenders handle it. This is what lets the buyout keep the parent-child exclusion on the whole property.

What happens if I already distributed the house to all the siblings?

It gets much harder. Once all the heirs hold title and then some sell to another, the purchased fraction is generally reassessed. That’s why the structure has to be set while the house is still in the trust—talk to a lawyer before distributing anything if you plan to keep the home.

The bottom line

Buying out your siblings without wrecking the property-tax basis is doable, but it’s one of the few estate situations where the order of operations decides the outcome. Fund the buyout through a third-party loan to the trust, keep the house in the trust until it’s structured, move in and file for the homeowners’ exemption, and stay under the $1,044,586 cap. Do it in the wrong order and you’ll pay reassessed taxes for as long as you own the home. Before you distribute a single share, Talk to Eric—this is worth getting right the first time.

Sources: California Revenue & Taxation Code § 63.2 (Prop 19 parent-child exclusion, $1,044,586 for 2025–26); Rev. & Tax. Code § 62(a)(2), § 63 (proportional-interest / co-owner transfer rules); California State Board of Equalization Prop 19 guidance.