Does Prop 19 change the step-up in basis when I inherit?

The practical consequence is that you can face a large property tax increase and a very small capital gains bill on the same house. Suppose your father bought a rental in Sunnyvale for $200,000 and it is worth $2,000,000 when he dies. Because it is a rental rather than his principal residence, there is no parent-child exclusion under Prop 19 and it is reassessed to $2,000,000 for property tax, roughly a tenfold jump in the annual bill. At the same time your basis for income tax purposes becomes $2,000,000, so if you sell it a few months later for $2,050,000, your taxable gain is about $50,000 rather than $1,850,000. That combination is precisely why some families decide to sell an inherited property rather than hold it, and why the property tax answer and the income tax answer have to be worked out together. It is also why gifting a house during a parent's lifetime is usually a poor idea, since a lifetime gift carries the parent's old basis forward instead of resetting it. That trade-off is worked through in the question on whether parents should deed the house to a child now to get ahead of Prop 19.