I can’t afford to keep the house. Should I sell it, or leave it to my children?

You are being told two true things that point in opposite directions. Selling a house you have owned for fifty years does trigger a large tax bill — on a $6M Palo Alto sale with a low basis, something in the region of $1.9 million across federal, state and the investment income tax. Leaving it to your children erases that tax entirely, because their basis resets at your death. What almost nobody mentions is the third set of consequences: Medicare premiums two years later, and Medi-Cal eligibility in the same year. Those can matter more to you than the tax does.

The situation, stated plainly

You own a Palo Alto house free and clear. You have owned it for decades. It is worth several million dollars and you cannot comfortably afford to maintain it, because your income is Social Security and your health cover is Medicare, or Medicare and Medi-Cal.

You have heard that selling would mean an enormous tax bill. You have also heard that your children would be better off inheriting it. Both of those are true, and neither of them is the whole picture.

Here is the arithmetic, so that whatever you decide, you decide it with the numbers in front of you.

What selling would actually cost

The illustration below assumes a $6,000,000 sale, a single filer, a house bought about fifty years ago with a basis of roughly $100,000 after improvements, and selling costs of about $400,000. Your own numbers will differ — particularly the basis, which every documented improvement raises.


Sale price	$6,000,000
Less selling costs	−$400,000
Less basis	−$100,000
Gain	$5,500,000
Less §121 exclusion, single	−$250,000
Taxable gain	$5,250,000

And the three layers of tax on that:

	Roughly
Federal long-term capital gains	~$1,020,000
Net investment income tax, 3.8%	~$200,000
California, gains taxed as ordinary income	~$680,000
Total	~$1,900,000

Leaving you roughly $3.7 million in cash.

Federal brackets from Rev. Proc. 2025-32: 15% to $545,500 of taxable income for a single filer, 20% above. NIIT thresholds $200,000 single, not indexed. California has no preferential capital gains rate; the top marginal rate is 13.3% including the 1% tax on income over $1,000,000. FTB had not published 2026 California brackets as of late September 2026, so the state figure is an approximation at the top rate.

If you are widowed, check one date. A surviving spouse can use the $500,000 exclusion rather than $250,000 if the sale happens within two years of their spouse’s death and they have not remarried. And if the house was community property, the whole of it — not half — stepped up in basis when your spouse died, which could reduce that gain dramatically or eliminate it. That single question is worth asking before anything else on this page.

What leaving it to your children would cost

In income tax: nothing.

At your death their basis becomes the market value on that date. Fifty years of appreciation is erased. If they sell shortly afterwards, the taxable gain is close to zero.

California has no estate tax and no inheritance tax. The federal estate tax exclusion in 2026 is $15,000,000 per person, so it is not in play.

But they do not inherit your property tax bill. Since February 2021, Proposition 19 reassesses an inherited home to market value unless a child makes it their principal residence and files for the homeowners’ exemption within one year of your death — and even then the protection is capped at your factored base year value plus $1,044,586 (the figure in force through 15 February 2027).

So on a $6M house with a very old base, a child who moves in keeps a large discount but not all of it, and a child who does not move in faces a property tax bill calculated on $6 million. In Santa Clara County that is roughly $70,000 a year. It is one of the main reasons inherited Palo Alto houses get sold within a year or two anyway.

The part nobody tells you: Medicare and Medi-Cal

This is the section that matters most for someone living on Social Security, and it is missing from almost every article on this subject.

Medicare premiums jump — two years later, for one year

Medicare’s income-related surcharge, IRMAA, is set from your tax return two years earlier. A sale closing in 2026 shows up in your 2028 premiums.

At the top bracket, Part B goes from $202.90 a month to $689.90, and Part D adds about $91 a month. That is roughly $6,900 more over that year.

Then it falls away automatically, because the following year’s return is back to normal. It is a one-year cost, not a permanent one.

It cannot be appealed. Social Security’s own manual lists “capital gains from the sale of property” by name as something that does not qualify as a life-changing event on form SSA-44. The eight events that do qualify are things like widowhood, divorce and losing a pension. A voluntary home sale is not one.

You cannot argue it away. You can only plan around it — which closing year, and whether the sale can be structured across two tax years.

Source: CMS 2026 Medicare premiums fact sheet; SSA POMS HI 01120.005.

Medi-Cal is the serious one

If you are on Medi-Cal, read this part twice.

The proceeds are not income. For a senior, Medi-Cal uses the non-MAGI rules, and money from selling your own home is treated as converting one asset into another, not as income.

But they are an asset, and California’s asset limit came back on 1 January 2026: $130,000 for an individual, $195,000 for a couple. Before that there was no limit at all for two years, which is why a lot of what you may have been told is out of date.

$3.7 million in the bank is far past $130,000. Medi-Cal eligibility would end.

There is one narrow exception and it has a hard edge. Proceeds from selling an excluded home stay excluded if they are used to buy another home you live in, within three full calendar months of receiving them. Miss that window and the exclusion is revoked retroactively to the date you received the money — so eligibility can be lost back to the month of the sale, not from the month you noticed.

If you are on Medi-Cal and thinking of selling, speak to a benefits counsellor before you list. Not before you close — before you list. Legal Aid at Work, CANHR and Justice in Aging all cover this ground, and the local Health Insurance Counseling and Advocacy Program is free.

A large gain pushes almost anyone to the maximum: 85% of your Social Security benefits become taxable for that year. It reverts the following year, and 85% is the ceiling — there is no penalty beyond it.

Laying it side by side

	Sell now	Leave it to them
Income tax	~$1.9M on this illustration	None — basis resets at death
What you have to live on	~$3.7M	The house, and its costs
Their property tax	Not your problem	Reassessed unless a child moves in within a year
Your Medicare	~$6,900 more in 2028, once	Unchanged
Your Medi-Cal	Lost, unless proceeds buy another home within 3 months	Unchanged
Maintaining the house	Ends	Continues

What is actually being traded

Strip the tax language away and the choice is this:

Selling converts a house you cannot maintain into roughly $3.7 million and your own freedom. The tax is large, and what remains is still a great deal of money — enough to buy something smaller here, or elsewhere, and have a lot left over.

Holding preserves about $1.9 million of family wealth and hands your children a house, a property tax reassessment, and whatever they work out between them. It also means you go on living in a house you have told me you cannot keep up.

There are middle paths. Selling and buying something smaller nearby, carrying part of your assessed value with you if you are over 55 and qualify under Proposition 19 — up to three times in a lifetime, anywhere in California, with two years to buy. Selling in a year when other income is low. In some families, children who would rather have a parent who is comfortable than an inheritance that is larger.

And one thing worth saying out loud. “My children would be upset” is a reason to have a conversation, not a reason to stay in a house you cannot maintain. In my experience that conversation usually goes better than the person expects, and the children are frequently relieved.

What to do first

Find out what the basis really is. Fifty years of documented improvements can be several hundred thousand dollars, and every dollar of it cuts the taxable gain. Permits, invoices, cancelled cheques.
If you are widowed, get the community property question answered. It can change the tax by more than everything else on this page combined.
If you are on Medi-Cal, talk to a benefits counsellor before you list.
Take the numbers to a CPA and have your actual liability calculated, not estimated from an article. On a sum this size it is the cheapest hour you will spend.
Then find out what the house is worth, and what it would take to sell it well. That part is my job, and it is free, and it does not commit you to anything.

Not legal, tax or financial advice

Maggie is a licensed REALTOR® (DRE #02117367), not an attorney, a CPA, a tax adviser or a benefits counsellor. Every figure on this page is an illustration built on stated assumptions, current as of September 29, 2026, with its sources named so you or your professionals can check them. None of it is a calculation of what you would owe.

What Maggie can tell you is what your house is worth today and what it would take to sell it well — and she will tell you honestly if selling is not the right move for you.

Maggie is a licensed REALTOR® (DRE #02117367), not an attorney, an accountant or a tax adviser. Everything here is general information about how these rules work in California, current as of the date on the page, and none of it is legal or tax advice for your family. Decisions about title, trusts and taxes should be made with an estate attorney and a CPA.