So if nothing is done prior to Feb 2021, and sometime in the future when inherited with 3 heirs divided equally, if only 1 of 3 choose to live in the parent's house, what happens to the property tax basis? Does 2/3 of it get reassessed (increased)? I'm reading that all 3 owners must live in the house within 1 year to get the full benefit up to $1 million dollars.
If all 3 siblings inherit a property such that each owns 1/3, and only one lives in it, then I believe you can apply for the $1M reduction on one third of the home. As I understand it, the new assessment base should be 2/3 of the current FMV, plus 1/3 of the current FMV minus $1M. This only works if the current FMV is at least $3M greater than the parents' base value, because there's no reduction if the increase on the resident-owner's share is less than $1M.
The assessor is only going to issue one tax bill per property, so it's up to you and your co-owners to decide how to pay it. There's nothing stopping you from dividing it by 3, which effectively gives you each 1/3 of the exclusion.
It only adversely effects people who are converting it from primary home of (now deceased) parent, to a rental/investment property.
It also adversely affects heirs who want to live in the inherited home as their primary residence if the value of the home has increased by more than $1M since the parents' property tax base was established.