In Nov 2020 voters in California were presented with a new property tax measure… Proposition 19. So in addition to a Prop 19 parent child exclusion, a mission was apparently added to help fire-fighters; providing seniors and disabled homeowners with property tax breaks, along with folks over 55 who have suffered property damage from a natural disaster such as flooding, or an earthquake.
Californians Still Have Property Tax Relief to Turn To
Despite several limitations, parents in California can still transfer property they own to beneficiaries, with parent’s low property tax base since the parent-child transfer provides grown children with an exclusive property tax break that provides exclusion from property reassessment – thereby avoiding or minimizing property tax reassessment.
This also applies to grandparent to grandchild beneficiary transfers… However, necessitating that both parents of the beneficiaries must be deceased to qualify the grandparent-to-grandchild exclusion, or exemption.
Under new property tax requirements under Proposition 19, a parent must have lived in the residence being transferred, usually via inheritance to beneficiaries… as a primary residence. And must have filed a “homestead exemption” for the inherited property going to their beneficiaries.
An inherited home can be valued up to $1,000,0000; with the beneficiary prepared to move into the home within one year as a primary residence; plus claim a homeowners’ exemption – in order for the property transfer to be excluded from property tax reassessment.
Prop 19 Favors Seniors, and Folks with Bad Luck or Poor Health
Under Proposition 19 homeowners age 55 and up, severely disabled, or victims of wildfire or a natural disaster, can buy a new primary residence anywhere in California up to three times, and transfer their lower property tax basis from their existing property to their new property. The new property has to be of equal or lower value of the original property being sold.
This is all in addition to, not replacing, the old Proposition 58 property tax benefits that provide Californians with the ability to avoid a sibling to sibling buyout directly, while still being able to buyout siblings and retain sole ownership of inherited property… all the while managing to avoid property reassessment with a parent-child transfer… with the right to keep parents property taxes (low property taxes) through a Prop 19 parent child exclusion in California. A property tax transfer is still accessible for all Californians inheriting property from parents, while at the same time inheriting property taxes. In other words, inheriting property while keeping a low property tax base
Even though a Prop 19 parent child exclusion is subject to certain new limitations… as long as one stays in compliance — the property tax breaks are there to take advantage of. Which is why many beneficiaries work with a trust lender to buyout co-beneficiaries, retaining sole ownership of inherited property along with minimizing their property tax reassessment…. Moreover, so beneficiary property disputes can be resolved by a loan to a trust.
On the other hand, if a beneficiary sold his or her inherited property after the date of parental death, capital gains tax would be low, if any. The estate tax for 2021 was capped at $11.7 million… Estates valued at less than $12.06 million in 2022 for individuals are exempt from an estate tax.
Every property owner in California resident is allowed to gift a certain amount of property per year, tax-free. In 2021, this amount was $15,000, and in 2022 this amount is $16,000. There is a good chance estate taxes will not be imposed, looking ahead… unless the estate tax cap is revised… And that’s highly unlikely in the foreseeable future.