Will California Reinstate Propositions 58 Property Tax Transfer Laws?

Assembly Constitutional Amendment 9 (ACA 9) has been introduced by Assemblyman Kevin Kiley, of Granite Bay, CA – to formally reinstate Propositions 58 and 193, and return the parent-child exclusion to full unlimited measure; without imposed limits, to the CA state constitution – restoring the ability of parents and grandparents to pass on property to the next generation without any deceptive obstacles and/or property tax increases.

The CA Legislature Assembly Constitutional Amendment 9 was  introduced by Assembly Member Kiley on May 03, 2021, regarding property taxation & the transfer of an inherited home to a principal residence, for beneficiaries. 

ACA 9 is written into the official California record, as follows:

“The California Constitution limits the amount of ad valorem taxes on real property to 1% of the full cash value of that property, defined as the county assessor’s valuation of real property as shown on the 1975–76 tax bill and, thereafter, the appraised value of the real property when purchased, newly constructed, or a change in ownership occurs after the 1975 assessment, subject to an annual inflation adjustment not to exceed 2%…

The California Constitution, until February 15, 2021, excluded from classification as a “purchase” or “change in ownership” requiring reappraisal the purchase or transfer of a principal residence and the first $1,000,000 of other real property of a transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased.

On November 3, 2020, the voters approved Proposition 19. Pursuant to Proposition 19, the California Constitution, on and after February 16, 2021, removes the above-described exclusion from classification as a “purchase” and “change in ownership” requiring reappraisal, and instead excludes from classification as a “purchase” and “change in ownership” the purchase or transfer of a family home or family farm, as those terms are defined, of the transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased, if the property continues as the family home or family farm of the transferee. In the case of the exclusion so provided to a transfer of a family home, the California Constitution, pursuant to Proposition 19, requires the transferee to claim the homeowner’s or disabled veteran’s exemption within one year of the transfer.

This measure would repeal the above-described provisions of Proposition 19. The measure would reinstate the prior rule excluding from classification as a “purchase” or “change in ownership” requiring reappraisal the purchase or transfer of the principal residence and the first $1,000,000 of other real property of a transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased. The measure would apply retroactively to all effected purchases or transfers occurring on or after February 16, 2021.”

Prior to 1978 with the advent of Proposition 13 becoming law, capping property tax reassessment at 2% for owned property in California, residents found themselves paying arbitrary property tax hikes more and more often, with elderly homeowners, living on a modest fixed income, being evicted when they couldn’t pay egregious tax hikes, which started to become a frequent event; and began to alienate and anger the middle class public, to an extreme degree.  It wouldn’t be an over-statement to say this widespread displeasure opened up the doors wide for a tax break like the parent-child exclusion!  Property tax breaks that enabled the middle class all across California, when inheriting property from parents, to feel justified, just like the wealthy, to be keeping a low property tax base when inheriting a home.

Middle class residents in Californians, and working families, were frustrated that rapidly rising property values had turned property taxes into what was effectively a “death tax”.  It was this overall response from the public throughout the state that left events wide open, in terms of following and supporting Howard Jarvis and his Taxpayers Association – adopting the property tax relief measure they called Proposition 13.

Under Proposition 13, which passed in a landslide in 1978, property tax assessments could no longer increase more than 2% per year until, or unless a new owner took over the property, which triggered a reassessment at current market rates. Middle class offspring inheriting their parents’ home usually figured out right away that they were going to have a real problem paying reassessed property taxes, as that tax bill was typically more than most middle class families could afford to pay every year. 

So in 1978 Californians happily accepted the ability to keep parents’ property taxes, transfer parents property taxes, and inheriting property taxes instead of paying egregious tax hikes.  The right to finally have access to  a property tax transfer from a parent, a parent-child transfer, or parent-child exclusion, was huge for California property owners… in fact, even for renters.  And certainly for residential and business, or commercial, property owners.

Then, having tasted some of “the good life”, in terms of saving on taxes,  formerly enjoyed only by the nouveau riche and old money, Californians, in 1986, voted in high numbers and passed a  measure called Proposition 58 with the approval of more than 75% of California voters.  This amended the California constitution, to state that the transfer of real estate between a parent and a child, generally property transferred from parent to an heir, would not be considered a “change of ownership” and would fall under a new property tax reassessment exclusion, something they called “a parent-child exclusion”; capping their property tax bill at the same rate their parents paid.

A decade later, voters approved Proposition 193 to apply the same exclusion as the parent-child exclusion, except it covered property transfers between grandparents and grandchildren – as long as the children’s parents were deceased.  California Proposition 193 grants the same rights to a grandchild as Proposition 58 grants to a child.

Under Proposition 58 and Proposition 193, working families could transfer a home of any value plus up to $1,000,000 of assessed value of additional real estate. This protected families that owned a small business, or a condo or duplex that was rented out for income, or a vacation property.  Therefore the death of a parent would not trigger a sudden reassessment of these properties at current high market rates, increasing yearly property taxes to such a degree that middle class beneficiaries would be forced to sell their inherited property shares right away.

Jon Coupal, president of the Howard Jarvis Taxpayers’ Association, summed up this proposed tax measure in the Daily Breeze on May 9, 2021 in clear fashion, when he said:

“…a slick advertising campaign for Proposition 19 tricked voters into repealing Propositions 58 and 193 without realizing the impact it would have on their own families. Prop. 19 replaced the parent-child transfer exclusion from reassessment, which has been in the state constitution for 35 years, with a narrow exclusion that only applies to homes that the heirs move into within a year and make their permanent principal residence.

These harsh provisions took effect with lightning speed in February, at a time when families were prevented by the pandemic from meeting with other family members, attorneys or tax advisers. Many people are just now finding out what happened. Letters are going out from county assessors to grieving families advising them of their new tax obligations.

This must be fixed. And it can be if Californians make their wishes known to elected representatives. ACA 9 would preserve family businesses, affordable rental properties, and home-ownership for families that otherwise would lose the benefit of the hard work their parents put in to secure their futures.”

We couldn’t have said it any better ourselves.