We all had our eyes on the election results last week. For Californians, we have a few law changes that might impact our property taxes. Basar Law wants to help Californians understand the shifts caused by Proposition 19.
What Does Proposition 19 Modify?
Proposition 19 is a ballot measure in California to modify Propositions 13 and 58. As a reminder, Proposition 13 passed in 1978, and it limited property tax increases to 2% annually unless reassessed due to sale or other transfer. As a result, many California properties have a property tax assessment far lower than the current fair market value.
Proposition 58, passed in 1986, allowing a property owner to transfer their primary residence (and up to $1 million in assessed value of other property) to their children at their same property tax assessment. (A later proposition expanded this to qualifying grandchildren.) This proposition allowed children to inherit property from their parents and grandparents while keeping the same property tax.
California law also allowed an eligible homeowner (over age 55, severely disabled, or the victim of a natural disaster) to move once to a participating county in the state and keep their assessed valuation if they were moving to a home of equal or lesser value.
Effects of Proposition 19 in California
The Good News: Proposition 19 changes the existing law under Propositions 13 and 58. First, starting April 1, 2021, it allows eligible owners (over age 55, severely disabled, or the victim of a natural disaster) to move anywhere in the state up to three times to a home of equal or lesser value and bring their property tax assessment with them.
The Bad News: Until Proposition 19 goes into effect, a property owner can leave their primary residence and up to $1 million in assessed value of other real estate to their children (and qualifying grandchildren) without causing a reassessment of property taxes.
Once Proposition 19 goes into effect on February 16, 2021, the parent-to-child exemption would only apply if:
- Only if the child (or qualifying grandchild) is going to use the transferred property as their primary residence, and
- only to the extent, the fair market value doesn’t exceed the assessed value by more than $1 million.
After Proposition 19, the transfer of other property, such as rental property or commercial properties, would face reassessment to fair market value at the time of transfer.
What Does Proposition 19 Mean For California Property Owners?
Whenever a law change occurs, it is vital to review your existing estate plan to align your wishes with that change.
This law change means that if you wish to transfer your property to your children, it might be a good idea to make the transfer before Proposition 19 goes into effect so we can still take advantage of the Parent-Child Reassessment Exclusion and avoid a reassessment of property taxes.
It is important to note that you should not make any transfers to your children or grandchildren without talking to your estate planning attorney and tax professional. There might be other tax consequences of making such transfer, or there might be better planning opportunities.
We strongly encourage you to contact us or schedule an appointment today to find out if and how Proposition 19 will impact you and discuss planning opportunities that are available until February 16, 2021.