When You Inherit a Home, Do You Also Inherit the Property Tax?

Baby boomers hold more than $19 trillion in real estate wealth, much of which is expected to pass to their children and grandchildren over the coming decades in what some economists are calling a “silver tsunami.”

A home is often a family’s greatest asset, and while inheriting one can seem like a windfall at first glance, it can also be a financial trap. Unlike cash or insurance benefits, real estate comes with ongoing costs that don’t go away when the mortgage is paid off. Property taxes alone can run into the tens of thousands each year in high-tax states, turning a gift of wealth into a burden.

Knowing when heirs are responsible, what executors must settle first, and how property taxes “stick” to the home itself is essential for anyone who expects to inherit a home in the coming years.

Who pays property taxes when the owner dies?
When a homeowner dies, the executor of the estate is responsible for making sure all property taxes are paid before the home can officially transfer to heirs.

If those taxes go unpaid, the county can place a lien on the property—and in extreme cases, foreclose and sell the home at auction. Often, property taxes are one of the very first debts cleared during probate to avoid this very scenario. 

But if the property passes to you immediately—for example, with a transfer on death deed—you may be responsible for paying those taxes, sometimes at a higher rate than the original owner.

In many states, heirs risk losing valuable property tax exemptions when a home is transferred. California’s Proposition 19 is a prime example: Before it passed in 2020, children could inherit both a home and their parents’ very low property tax rate. 

Now, the property is reassessed at market value when it transfers, and taxes can rise steeply unless the heir moves in and files to make it their primary residence within one year. Even then, only up to $1 million of assessed value is excluded, and multiunit properties complicate matters further. 

For heirs who plan to rent out or sell the home, the inherited tax advantage disappears completely, sometimes adding tens of thousands of dollars a year in new taxes and forcing families to rethink whether they can afford to keep the property.

It’s a lot to navigate, especially for heirs who may not have the experience of owning a home of their own before taking on the sudden responsibility for their inherited home amid their grief. Many are already anxious about these responsibilities, with 42% of younger Americans reporting they’re unprepared for the realities of maintaining an inherited home.

Do heirs inherit back taxes, too?
Once the home’s title is transferred, heirs may be on the hook not just for future property tax bills, but for any overdue balance as well.

Property taxes “run with the land,” meaning they stay tied to the home itself—not the previous owner. In practice, that means you could inherit both the keys and any unpaid tax bills. If the balance isn’t settled, counties can tack on penalties and interest, and even pursue foreclosure.

The same can be true for senior deferrals. If you inherit a home from someone who was enrolled in the deferral program, the bill becomes due at death—but exact details will vary by state law. You may be able to pay the back taxes from any home sale proceeds. However, if you plan to stay in the home, you may be responsible for paying it outright with interest as high as 7%. 

There can be exceptions, though. In Washington, for example, if a surviving spouse, domestic partner, or heir is at least 57 years old and also qualifies for the deferral program, they can apply within 90 days to keep the deferral going. 

Why location makes all the difference
Property tax rates, exemptions, and payment procedures are highly local, varying by state and county.

In places like Alabama—the state with the second-lowest effective property tax rate, according to the Tax Foundation—an annual property tax bill might be just a few hundred dollars. But in high-tax states such as New Jersey, New York, and Illinois, the same inherited home could come with a $10,000-plus yearly tax bill.

Most people who inherit a home aren’t fresh out of college, but are midlife adults already balancing mortgages, college debt, and retirement savings. And while they may be banking on an inherited property to become their forever home or a source of rental income, adding a new tax bill on top of that can throw even the best-laid financial plans off track.

An overwhelming 66% of Americans expect to or already have received an inheritance from their parents, according to a new survey from Choice Mutual, and 1 in 10 doesn't feel pressured to save for retirement because of their expected windfall.

But for some families, the tax bill alone will force a tough decision: Keep the family house and sacrifice retirement security, or sell the property to avoid derailing long-term goals.

How to keep property taxes from becoming a hidden inheritance
The best way to keep property taxes from blindsiding your heirs is to plan ahead. A will or trust can spell out how property taxes should be paid, whether from estate assets, a dedicated account, or proceeds from selling the home.

Some families even purchase life insurance specifically to cover final expenses, including lingering property tax bills, so heirs aren’t forced to come up with the money. Seniors who put their home into a trust can also direct the trustee to use trust assets for taxes before the property is transferred.

Without these steps, heirs often discover too late that the “gift” of a home comes with a recurring bill that can strain their own finances. A little estate planning now can turn an inherited home into an asset—not a liability.