This is one of the hardest conversations I have with families, and I have it often. Mom is 86, widowed, and still in the Mountain View house she and Dad bought in 1979. The stairs are getting harder, the kids live an hour away or more, and everyone agrees something needs to change. Then someone mentions the tax, and the conversation stalls: if she sells now, she may owe hundreds of thousands in capital gains, but if she keeps the house until she dies, her children inherit it with a stepped-up basis and owe almost nothing. Both statements are true. The right answer depends on much more than the tax, and this article lays out how I help families think it through. It’s part of my guide to capital gains when selling a Silicon Valley home you have owned for 30 years or more.
Key Takeaways
Summary: Holding a long-owned Silicon Valley home until death can erase hundreds of thousands in capital gains for the heirs through the stepped-up basis. But the parent’s care, safety, and need for cash come first, so the tax savings should inform the decision rather than make it.
The Numbers on a Mountain View Home
In this example, Mom’s basis is about $1,000,000 because the home received a stepped-up basis when Dad died in 2005, plus improvements since then. Today it’s worth $2,400,000.
| Mom sells now | Children inherit and sell | |
|---|---|---|
| Sale price | $2,400,000 | $2,400,000 (assume same value at death) |
| Selling costs | ($130,000) | ($130,000) |
| Basis | $1,000,000 | $2,400,000 (stepped up) |
| Gain | $1,270,000 | A loss of about $130,000 |
| Exclusion (single filer) | ($250,000) | Not needed |
| Taxable gain | $1,020,000 | None |
| Rough combined tax | About $300,000 to $330,000 | None |
The tax estimate is rough and depends on her other income. It assumes federal long-term capital gains rates of 15% and 20%, the 3.8% net investment income tax, and California taxing the gain as ordinary income, since the state has no lower rate for capital gains. My worked example in how much capital gains tax you’ll pay selling a house in California shows how the layers add up.
What Holding the House Actually Costs
That tax savings is real, but so are the costs of staying or holding.
- Care. CareScout’s 2025 Cost of Care Survey puts the national median for assisted living at $6,200 a month and a private nursing home room at about $10,800, and Silicon Valley runs well above those national figures. At the survey’s national median of $35 an hour, round-the-clock in-home care works out to more than $25,000 a month. Those costs have to come from somewhere.
- Safety. A two-story house with a steep driveway is a fall risk, and a fall can change everything.
- Isolation. Many older adults living alone in large houses are lonely, and moving to a community can improve quality of life in ways no spreadsheet shows.
- Maintenance. An older house keeps needing roofs, water heaters, and gardeners, and deferred maintenance reduces value.
- Market risk. The home’s value can go down as well as up.
From my practice: One couple had lived in their mountain home for decades, one of them for about 62 years, and they wanted to cash out and start over somewhere less expensive, even with six years of unpaid property taxes and a county judgment on title. It took three listings and more than two years, but the sale paid off more than $69,000 in county debt from the proceeds, and they moved to a new home in Washington. Holding a house for the step-up only makes sense when the carrying costs are covered, and here they weren’t.
Options That Can Preserve the Step-Up
| Option | How it works | Watch out for |
|---|---|---|
| Rent the house | Rental income helps pay for care, and the heirs still receive a stepped-up basis at death, which also wipes out depreciation taken during the rental years | Landlord responsibilities and taxable rental income. Renting doesn’t trigger a property tax reassessment, but Mom may lose her home sale exclusion if she later has to sell during life after being out of the house more than about three years |
| Home equity line of credit | Borrow against the house for care costs | Qualifying on retirement income, and repayment |
| Reverse mortgage | Draw on equity with no required monthly payment while she lives there | Generally requires the home to remain her primary residence, so it fits aging in place more than a move |
| Family help | Children fund care and are repaid from the estate later | Clear written agreements, and fairness among siblings |
I cover the borrowing options in ways to unlock home equity without selling and the quick guide to reverse mortgages.
A real example: Borrowing against the house to hold it for the step-up can work, but it has an end date. On one estate I handled, the owner had a reverse mortgage, and after she passed away the loan went into default and a notice of default was recorded. We sold for $700,000 all cash 101 days later, before a trustee sale could be scheduled, and the estate kept its equity. If a reverse mortgage or HELOC is part of the plan, the family needs to know exactly how the payoff will work when the time comes.
Moves That Kill the Step-Up, and Ones That Don’t
Once families understand the step-up, the next idea is usually a shortcut. Someone suggests putting the house in the kids’ names now, or a cousin swears the trust will take care of everything. Some of these moves preserve the step-up and some wipe it out completely, and on a Silicon Valley house the difference can be several hundred thousand dollars.
Gifting the house to the kids is usually the worst option
When Mom gives the house to her children while she’s alive, they don’t get a new basis. They take over her old one, which tax people call carryover basis. In the Mountain View example, the kids would receive a $1,000,000 basis on a $2,400,000 house, and because they never lived there as their own home, they wouldn’t get Mom’s $250,000 exclusion either. When they sell, they’d owe tax on roughly $1,270,000 of gain, which is more than Mom would have paid by selling herself. A gift can also trigger a property tax reassessment under Prop 19 unless a child moves in and makes it their primary residence, and it can complicate Medi-Cal planning. I’ve seen families do this with the best intentions and regret it, so please talk to an estate planning attorney before anyone signs a deed.
A revocable living trust keeps the step-up
This is one of the questions I hear most. A standard revocable living trust doesn’t change the step-up at all, because the house is still counted as part of Mom’s estate when she dies. The trust’s real job is keeping the family out of probate, which in California can take a year or more and cost a meaningful slice of the estate in statutory fees. An irrevocable trust is a different animal. In Revenue Ruling 2023-2, the IRS confirmed that assets in an irrevocable trust that aren’t included in the owner’s taxable estate don’t get a step-up at death, so if Mom’s house is in one, have the attorney review how it was set up.
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California community property can get a full step-up at the first death
This is a California advantage most national articles skip. When a married couple holds their home as community property and one spouse dies, the entire house generally gets a new basis, not just the half that belonged to the spouse who passed. That’s why Mom’s basis in our example jumped to about $1,000,000 when Dad died in 2005. For couples who are both still living, how title is held matters more than most people realize. A home held as joint tenants generally gets only a half step-up at the first death, while community property, or community property with right of survivorship, can get the full step-up on both halves. Pull the grant deed and have your attorney or CPA confirm which one you have.
What about the estate tax?
Plenty of families worry that holding the house just trades one tax for another. For most of the people I work with, it doesn’t. Starting in 2026, the federal estate tax exemption is $15 million per person, and California has no estate or inheritance tax of its own. Unless Mom’s total estate is well above that line, the house can pass to the kids with the step-up and no estate tax at all.
If Mom Moves Out First: The Three-Year Window
Families often assume that the moment Mom moves into assisted living, she loses her $250,000 exclusion. She doesn’t, at least not right away. The exclusion requires that she owned the house and lived in it as her main home for at least two of the five years before the sale, which means she can move out and still sell within about three years and keep it. If the house is rented during that window, she still keeps the exclusion, but any depreciation taken during the rental years is taxed when she sells.
There’s also a special rule that matters a lot for families dealing with dementia or a serious decline. If Mom becomes physically or mentally unable to care for herself, and she lived in the house as her main home for at least 12 months of the five years before the sale, the time she spends in a licensed care facility counts toward the two-year requirement. IRS Publication 523 explains this, and it can keep the exclusion alive for a parent who has been in memory care for several years. The facility has to be licensed to care for her condition, so confirm the details with the CPA before the family counts on it.
The Questions I Ask Families
- Is the house still safe and right for Mom today, and for the next few years?
- How will her care be paid for if she stays, and if she moves?
- If the house is rented or held, who will manage it, and do the siblings agree?
- Does anyone want to live in it? If so, Prop 19 comes into play. See my Prop 19 guide.
- Is Medi-Cal a possibility? If so, an elder law attorney should be involved before any decision.
- What does Mom want?
That last question sometimes gets lost when the adult children are running spreadsheets. In my experience, the families who feel best about their decision years later are the ones who started there.
Capital Gains Calculator
Bought for $180K and worth $2.4M today? See what you'd owe in capital gains tax.
After decades in Silicon Valley, your gain can blow right past the $250,000 and $500,000 exclusions. Plug in your numbers and see your estimated tax bill and how much cash you'll walk away with.
Run My Numbers →If Selling Now Is the Right Answer
Sometimes the tax is worth paying. If the house is unsafe, care is needed now, and there’s no practical way to fund it without selling, then selling is the right move, and there are still ways to reduce the tax: document every improvement, time other income, and ask the CPA about installment sales. See how to rebuild your cost basis. For the full capital gains picture, go back to capital gains when selling a Silicon Valley home you have owned for 30 years or more.
Sources and Further Reading
- IRS Publication 551, Basis of Assets
- IRS Publication 523, Selling Your Home
- IRS Publication 559, Survivors, Executors, and Administrators
- IRS Revenue Ruling 2023-2, Basis of Assets in Irrevocable Trusts
- IRS, Estate Tax
- California State Board of Equalization, Proposition 19
- CareScout, Cost of Care Survey
Frequently Asked Questions
Is it better to sell a parent’s house before or after death for taxes?
For capital gains, holding until death is usually better because heirs receive a stepped-up basis. But care costs, safety, and the parent’s wishes often matter more than the tax.
What is the stepped-up basis at death?
When someone dies, the property they owned generally receives a new tax basis equal to its value on the date of death, so decades of appreciation aren’t taxed as capital gains to the heirs.
Can we rent out Mom’s house to pay for assisted living and keep the step-up?
Yes. If she still owns the house when she dies, the heirs generally receive a stepped-up basis, even if it was rented. Rental income is taxable, and renting may affect her exclusion if she later sells during life.
How much tax would my parent pay selling a house worth $2.4 million?
It depends on basis and income. In one example with a $1,000,000 basis, a single filer’s taxable gain after the $250,000 exclusion was about $1,020,000, with roughly $300,000 to $330,000 in combined tax.
Should the capital gains tax decide whether my parent moves?
It should inform the decision, not make it. Safety, care needs, quality of life, and the parent’s wishes come first.
Should my parent gift the house to the kids to avoid capital gains?
Usually not. A gift passes the parent’s original basis to the children, so they lose the stepped-up basis and may owe more tax when they sell than the parent would have. It can also trigger a property tax reassessment under Prop 19.
Does a house in a living trust get a stepped-up basis?
Yes. A home in a standard revocable living trust is still part of the owner’s estate, so the heirs generally receive a stepped-up basis. Assets in an irrevocable trust that are excluded from the estate generally do not.
Can my parent still get the $250,000 exclusion after moving to assisted living?
Usually, if the home sells within about three years of moving out, because the rule requires two years of use out of the last five. If the parent can no longer care for themselves, time in a licensed care facility can count toward that requirement.
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