California Parent to Child Property Tax Transfer

CA Proposition 19 Tax Relief & Exclusion From Reassessment

As of Feb 16 in 2021, Proposition 19 changed everything. Despite some revisions to California’s primary property tax relief system impacting beneficiaries inheriting property, and homeowners, affecting future inheritance property tax breaks.

Homeowners over 55, with physical disabilities, or whose home has been destroyed or seriously damaged by forest fire or other natural disasters – can now take advantage of significant exclusion from reassessment for property transfers… or “exemptions” from the affect of steep property reassessment under Proposition 19 property tax relief.

Prop 19 allows transfers of a family home, or a family farm, between parents and their children, or grandparents and their grandchildren, without causing “a change in ownership” which would unravel tax benefits such as exclusion from reassessment for property transfers, and trigger crippling property tax reassessment.  Fortunately, we can still avoid “change of ownership” which would cause a steep property tax burden to descend on beneficiaries.     

Parent-Child California Property Transfers

Let’s make sure we understand that this isn’t some sort of automatic overnight property tax relief solution. There are certain qualifications that must be met. Every beneficiary has to be found to be “eligible” for a homeowners’ exclusion or a disabled veterans’ exemption – and applied for no longer than twelve months after the transfer of property or the purchase of the property in question.

To reiterate, before any inherited property transfer, parents must prove they have been primary residents of the property being transferred or inherited;  and at least one child/beneficiary will show that there is one or more  primary residents living in that property inside of twelve months after the intra-family property transfer.  

Similarly, a parent must also be eligible for the homeowners’ or disabled veterans’ exemption within one year of transfer or purchase.  The purchase or transfer of “a family home” between parents and their children (beneficiaries) can be qualified for exclusion from reassessment if and only if the property in question is continually lived in as “the family home” of the transferee.

Moreover, at least one of the children-beneficiaries involved has to show that they are residing full time in their inherited home as “a primary residence” – as opposed to renting it out to others as a vacation home, or using it as a weekend swelling, for instance.

The BOE & Property Tax Exclusion From Reassessment

The BOE, CA State Board of Equalization, tells us that if a parent or their principle beneficiary/child did not get final approval for their property tax exclusion (or “exemption”) inside a year, but was actually eligible – they can apply for an exclusion by showing that their inherited home is indeed their primary residence.

To qualify, the assessed value of the home upon purchase or transfer has to go through a valuation examination. Any Tax Assessor’s Office provides a digital “calculator” to help homeowners estimate potential tax savings. 

The value limit is equal to the home’s taxable value at time of transfer plus $1,000,000.  Any amount at market value that goes over the limit is added to the taxable value for the transferee.  Partial tax relief is allowed to mitigate the tax burden…  under the parent-to-child exclusion up to the value limit; with the remainder assessed at the current, up to date, market value.

A tax relief exclusion from reassessment for transfers between grandparents and their grandchildren follow the same rules and regulations as the standard parent-to-child exclusion… providing the parents of any grandchildren have passed away. Moreover, special rules apply to multi-unit residential residences and mobile homes.

At the same time, beneficiaries inheriting a home from parents, as well as homeowners, must continue to watch for any changes to their ability to maintain a low tax rate, inheriting property taxes, from a parent to child transfer, and to steer clear from triggering steep reassessment of inherited property – thereby avoiding property reassessment through a parent-child transfer and a parent-to-child exclusion… still intact, thankfully, despite all these new rules for property tax transfers in California – but still must be watched carefully at all times.

Californians’ property tax breaks, their right to transfer parents’ property taxes and to keep their parents’  property taxes basically forever, with a property tax transfer, has to be watched incessantly by non profit watchdog organizations, such as Howard Jarvis’ California Taxpayers Association, http://www.caltax.org, or http://www.ftb.ca.gov  

San Joaquin County Bar Assoc. Offers Perspective on Prop 19

“On paper, Prop 19 seems confusing, so a practical example might help: Mary owns her primary residence, which is worth $1 million and assessed at $300,000. Mary also owns a rental property worth $900,000 and assessed at $200,000. Mary has one child, John, to whom she will leave both properties.

Before Prop 19, John could inherit both properties and continue to pay the same property taxes Mary would have via the parent-child exclusion.  After Prop 19, if John inherits the rental property, it will be reassessed at fair market value because it was not Mary’s primary residence. If John inherited Mary’s primary residence and chose not to use it as his primary residence, it would also be reassessed at fair market value.

But if John chose to use it as his primary residence, there would not be a reassessment, as the difference between a primary residence’s fair market value ($1 million) and assessed value ($300,000) is less than $1 million. 

However, assuming that the fair market value of a primary residence is $1.5 million, instead of $1 million, with the same assessed value of $300,000. In that case, the property would be reassessed, since the fair market value ($1.5 million) is greater than $1 million more than the assessed value ($300,000) – but there would be a $1 million exclusion from assessment, so the residence would be reassessed at $500,000 ($1.5 million – $1 million).

This information is intended to provide a general summary of Proposition 19. It is not intended to be a legal interpretation or official guidance. Our advice is subject to change. So we encourage you to consult an attorney for advice on your specific situation.”

We could not have described and illustrated it better ourselves.

Assistance with transferring a property tax base on an inherited home

If you require assistance transferring a property tax base from a parent to a child on an inherited home, we suggest you call Commercial Loan Corporation at (877)464-1066 or visit their website at cloanc.com. Even if you do not require a loan to an irrevocable trust to make an equal distribution, they can help answer questions you may have and put you in contact with a Trust & Estate Attorney in your area if needed.