Prop 19 Parent-Child Exclusion From Property Tax Reassessment
We’re going to take a look at 2021 property tax issues from a high-level overview perspective here – simply to provide a firmer grasp on everything involved going forward, now that changes to California property tax relief are active.
Proposition 13 property tax relief was voted into California law on the June 1978 ballot, with 64.79% of the vote, insuring that, going forward, the taxable value of California properties would be based on their assessed value (i.e., “base year value”) rather than their current, or “fair market”, value. Proposition 58 followed in 1986, with its’ wildly popular “parent-child exclusion”… trust loans to allow beneficiaries inheriting property to begin keeping a low property tax base when inheriting a home is another outgrowth of the popular statewide California parent-child transfer tax break exclusion from property tax reassessment. If you need assistance with a trust loan or learning more about a parent to child property tax transfer, you can call 877-756-4454 or complete this form for additional information:
Despite the fact that the new Proposition 19 property tax law has for all intensive purposes replaced Proposition 58, Proposition 13 will remain intact, as is, going forward. Proposition 58, was passed on the Nov 1986 ballot, with 75.7% of the vote in California created an exclusion from property tax reassessment, or property transfers between parents and children, known as the parent-to-child exclusion.
Property tax transfer benefits to transfer parents’ property taxes, inheriting property taxes, are still intact under Proposition 19. The parent-child transfer tax break still allows new property owners, i.e., beneficiaries inheriting parental property, to keep parents property taxes – thereby avoiding property tax reassessment and maintaining exclusion from property tax reassessment. These tax breaks under Proposition 19 are most helpful to Californians with real estate that has low assessed values due to still robust Proposition 13 property tax relief.
As most of us know, assessed value usually reflects the purchase price plus added cost of alterations and improvements; plus an increase of 2% per year maximum tax rate – except when there is a change in property ownership.
Because real property in California tends to appreciate at a higher rate than 2% per year, the longer real estate is held onto the greater the difference between its’ assessed value and its’ fair market value, hence the greater the difference between property taxes a homeowner pays versus what is paid by the owner of a property just purchased, both properties being of similar value.
Proposition 19 allows a beneficiary inheriting parental primary property to move into an inherited primary residence right away, inside 12-months, avoiding property tax reassessment… As long as the fair market (i.e., current) value of the new inherited home doesn’t exceed the parent’s assessed value by more than $1,000,000
Qualified Personal Residence Trusts & Irrevocable Trust Loans
Anyone who has transferred California real property to a qualified personal residence trust (QPRT) that has not yet come to an end should seek legal counsel ASAP, since property held in a QPRT is not protected by Prop 19.
Likewise, with respect to irrevocable trusts, if you happen to have siblings and are of the mindset to buyout your sibling co-beneficiaries that are intent on selling off their inherited property shares to an outside buyer – plus you want to keep your parent’s low property tax base, a trust loan solution is surely worth exploring.
Moreover, as you are inheriting property taxes on an inherited home left by your parent, an irrevocable trust loan from a reliable trust lender, working in conjunction with Proposition 19, is certain to provide those co-beneficiaries of yours with far more cash than any outside buyer would offer… So all around, this trust loan process is surely worth serious consideration and an in-depth discussion with your trust or estate attorney.
Properties Held in Legal Instruments and Entities
It’s also worth noting that the parent-to-child exclusion does not apply to properties held in instruments such as LLCs (limited liability companies), in legally valid partnerships, or in corporations. There are different rules and regulations associated with any change in ownership and any subsequent property tax reassessment of real property held in such entities; possibly without exclusion from property tax reassessment.
Parents that want their heirs or beneficiaries to retain, not sell, property held in a California entity like an LLC, or corporation, or a partnership of some kind, should definitely seek legal advice from an attorney familiar with these type of issues to determine exactly how these separate rules and regulations apply to their specific situation.
Property owners should also speak to an estate or real estate attorney prior to transferring any real property out of or into legal entities like LLCs or corporations; or before implementing so-called “intra-family” transfers of any legal entities that own California based property. For several reasons – perhaps the most critical being the possibility of triggering property tax reassessment by accident!
Transferring Your Assessed Value to a New Primary Residence if You’re 55+, Disabled, or a Victim of a Natural Disaster or Wildfire
If you are over age 55 you now have access to special property tax relief privileges, which is ironic as social bias concerning older Americans usually places seniors in a somewhat inferior, less privileged position; yet in this case seniors are given greater tax privileges than younger residents, which is a rather extraordinary turnaround from the usual “ageist” social and work-place dynamic.
Or, if you are what tax assessors refer to as “severely” disabled; or if you are a victim of a governor-validated “natural disaster”; or an out-of-control wildfire, such as California has been experiencing on and off for some time – you can transfer the assessed value of your primary residence in California to a home you recently purchased, or that was constructed recently as a “replacement residence” in any one of the 58 counties in the great state of California.
Let’s step back for a moment, and take a realistic look at this process from a high-level viewpoint…
These days, the transfer of your property’s assessed value to a primary replacement residence can take place up to 2-years after the completed sale of your original primary residence; and will remain effective even if your replacement primary residence has a higher current, or fair market, value than your original primary residence.
However, if that is indeed the case, the excess fair market value of your new house will be added to the assessed value of your original house, which will result in the new assessed value of your new primary residence. Not only that, speaking of special privileges for those over 55… if you are a homeowner over 55, you can take full advantage of the assessed value transfer up to three (3) times during your lifetime.
Additionally, a “primary residence” under Proposition 19 also applies to family farms. Lastly, in certain situations, when a grandchild’s parents are both deceased, assessed value can also be legally and validly transferred from grandparent to grandchild, through Proposition 193.