The Proposition 58 parent-child exclusion and other tax breaks have now changed into the Proposition 19 Parent to Child Property Tax Transfer
As most Californians are aware, a home undergoes reassessment at “market value” if it’s transferred, inherited, sold or gifted – and, in turn, taxes on the property often increase significantly. Yet, if the sale or gift or transfer is between parent and offspring, in certain situations, the home won’t undergo reassessment once specific requirements are met and the relevant application is filed properly.
California’s unique Proposition 58 tax break enables new homeowners or beneficiaries to avoid property tax reassessment when inheriting real estate and liquid assets; upon receiving a home or other real estate from a parent – or vice versa. When a home, for example, is sold, given as a gift, transferred as an inheritance, or transferred through a trust. However, the fact remains – inheriting property taxes from Dad or Mom is now more limited than it was before.
As we know, a new homeowner’s property taxes are calculated through the time honored, low Proposition 13 base year value, typically what parents had paid… as opposed to so-called “fair market value” or “current market value” when new property is acquired – gifted, bought, generally inherited… As most homeowners know by now, real estate transfers excluded from property tax reassessment by Proposition 58 or Prop 193 have to be used as a principal residence (with no value limit).
For those of you who are extra detail oriented – Proposition 58 is established in section 63.1 of the Revenue and Taxation Code. It’s also worth mentioning that, with respect to Proposition 193, parents of a grandchild do have to be deceased prior to property transfer from grandparent to grandchild. Alternatively, the grandparent’s child can be deceased, with the surviving parent-in-law being remarried prior to the transfer event.
The below bullet points may untangle some of the confusion that has formed around some of these property tax breaks. We need to take note that property tax relief limitations built into Proposition 19 are presently serving as a replacement to the pre-Feb 2021 Proposition 58 parent-to-child exclusion, also referred to as a “parent-child exemption” (from property tax reassessment).
Some of the new Proposition 19 tax breaks are a work in progress, however most have been given a stamp of approval by the BOE
• Proposition 19 was more or less rushed through the political and electoral process, passed by the CA Legislature in under a week, and placed onto the Nov 2020 ballot, changing the California state constitution without implementing the appropriate statutes. Homeowners’ ability to transfer parents property taxes, in other words the right to keep parents property taxes on any parental property tax transfer, inheriting property taxes from Dad or Mom… and enabling heirs to keep parents property taxes are sill in place as valid tax breaks, allowing beneficiaries or heirs to avoid property tax reassessment – the process is just more limited than it was previously.
Moreover, establishing a low property tax base along with the transfer of property between siblings, sibling-to-sibling property transfer – buying out a sibling’s share of inherited property through a trust loan, in conjunction with Prop 58, is still firmly in place, however inheriting property taxes from Dad or Mom is now limited somewhat by Proposition 19. Similar limitations are now in place as well concerning the process of inheriting property taxes from a parent, the parent to child transfer and exclusion for reassessment of property taxes, or parent-child exclusion (from property tax reassessment at current market rates).
• Sections of the approved documentation and revisions to various sections are vague at best and often unclear
• To correct these issues, Santa Clara County Tax Assessor Larry Stone was appointed by the California Assessors’ Association (CAA), with four other tax Assessors, to a hastily formed CAA “committee” to try to provide some clarity to the new Proposition 19 implementation process.
• The CAA “committee” has enlisted supposed specialists and tax lawyers throughout California, and is working with the Board of Equalization (BOE) to furnish guidance and where necessary recommend passage, on an urgency basis, towards implementing appropriate statutes.
• Homeowners over the age of 55 (or “who meet other qualifications” which remains vague) would be eligible for property tax savings when they move. To avoid property tax reassessment at current or “fair market” rates, beneficiaries inheriting property from parents must move within 12-months into an inherited home, using this property only as a primary or principle residence.
• Likewise, the parent leaving the home to beneficiaries must have been residing in that home as a principle or primary residence. Apparently, going forward into 2021 and beyond, there will be no exceptions to these new rules and regulations.
• Only inherited properties used as primary homes or farms would be eligible for property tax savings. Those who are “severely disabled”, or whose homes were destroyed by wildfire or a “natural disaster” can now transfer their primary residence’s property tax base value to a replacement residence of any value, anywhere in the state. This was considerably more limited prior to Feb 2021.
• Eligible homeowners can now take advantage of “special rules” to move to a more expensive home. Their property tax bill would still go up but not by as much as it would be for home buyers that are “not eligible”.
• Eligible homeowners may use these “special rules” three times in a lifetime. (for declared disaster victims, there is no limit on the number of times these benefits can be used.)
A claim form must now, as of Feb 2021, be completed and signed by the transferors and transferee and filed with the Assessor. A claim has to be filed within three years after the date of purchase or transfer, or prior to the transfer of the real estate to a third party, whichever is earlier.
If a claim form has not been filed by the date specified above it will be timely if filed within six months after the date of mailing of the notice of supplemental or escape assessment for this property. If a claim is not timely filed the exclusion will be granted beginning with the calendar year in which you file your claim.