PART ONE: The Home Protection for Seniors, Severely Disabled, Families & Victims of Wildfire or Natural Disasters Act

California Proposition 19

California Proposition 19

Otherwise known as Proposition 19, the new tax measure, more or less replacing Proposition 58, implemented changes to the parent-to-child and grandparent-to-grandchild exclusion – with the base year value transfer measure going into effect April 1, 2021.

Although we’ve covered these rules and regulations previously in this blog it’s always worthwhile to hear what yet another California property tax specialist has to say, if only to verify what others have described as viable revisions to long standing property tax relief in California – so critically important to middle class and upper middle class residents.

Viewpoint From Los Angeles Tax Assessor Jeff Prang

So let’s take a quick look at what senior Los Angeles Tax Assessor Mr. Jeff Prang has to say about these changes to property tax relief in California, and see if his viewpoint is consistent with, or otherwise deviates from, other noted tax experts and property tax specialists in the state, some that we have reviewed or actually spoken to over the past tumultuous year.

Mr. Prang confirms that Proposition 19 tax base transfers allow seniors, age 55 and up, to transfer the taxable value of their existing home to a new “replacement home of any value” – anywhere in the state of California – up to 3-times, instead of only once, as previous property tax regulations allowed, prior to Feb 2021.

Interestingly enough, Mr. Prang mentions the former Proposition 50 and Proposition 171, and looks at the improvements brought about by Proposition 19 to those tax measures – concerning personal harm and property damage from natural disasters, or wildfire; and the subsequent transfer of base year value of a principal residence to any other county, which was much more limited before Proposition 19 took effect .

Mr. Prang also goes out of his way to point out that Proposition 19 allows homeowners to purchase a replacement home of greater value than their original home and transfer their tax base with an adjustment to account for the value difference in cases of homes destroyed or severely damaged by wildfire, which is ironically running rampant in 2021, or some other natural disaster such as flooding or an earthquake.

Parent-to-Child and Grandparent-Grandchild Property Transfer

As of Feb 2021, most tax experts and property tax consultants agree  that in order to inherit a low assessment of a parent or grandparent’s property, under Prop 19, some new conditions must be met, and estate attorneys must get up to speed with these conditions – such as getting in the habit of informing clients that an inherited home has to be moved into within 12 months, retaining a parent’s low property tax base; as primary residence, plus to qualify for a base year value the inherited home must have been the primary residence of the parent or grandparent leaving the property to heirs.

In fact, there is now so much new information for estate and tax attorneys to get up to speed with notably inheriting property while retaining a parent’s low property tax base, to avoid property tax reassessment that many law firms more frequently,  lately, have  been sending clients who are inheriting real property from parents to a trust lender, as those particular lenders bridge the knowledge gap – and serve a purpose lawyers cannot serve, which is providing funding to irrevocable trusts if you as a beneficiary want to keep your parent’s home and, most importantly, retain their low property tax base – buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base… Basically, taking advantage of Proposition 19 (previously Proposition 58 benefits) in conjunction with an irrevocable trust to buyout one or more siblings’  property shares.  Sounds simple, however it isn’t.

General consensus of tax experts in California is that the CA State Board of Equalization stipulates a concrete set of property tax rules and regs, despite the fact that there are still areas concerning Proposition 19 that remain vague and oddly non-specific, which is still causing accountants and other tax professionals a good deal of distress; and for their business and high net worth clients even more concern – particularly when there is a great deal of money at stake.

 >> Click Here for Part Two…

Unexpected Limitations Imposed on the CA Parent-to-Child Exclusion From Current Property Tax Rates

The California Parent-to-Child Exclusion for Property Tax reassessment

Keep a parents property tax rate on a home you inherit.

Parent-to-Child Transfer to Avoid Property Tax Reassessment

The ability to avoid property tax reassessment in California through Proposition 13 and Proposition 58 or Proposition 19 is not available only to families that own shopping centers, office buildings or apartments – it’s there for every middle class beneficiary and working family inheriting property from parents – to take full advantage of.  Despite limitations now imposed on some of these property tax relief measures, as of 2021.  It is still there to utilize, and unlike most tax loopholes and tax breaks, it’s not just for the wealthy.

Californians have relied on the Prop 58 parent-to-child transfer and Proposition 193 (grandparent-grandchild exclusion) to transfer California real property to children and grandchildren without property tax reassessment.  Until February 16, 2021, parents could transfer ownership of a principal residence of any value and up to $1 million of assessed value (per parent) of non-principal residence property (vacation and rental homes, commercial property, etc.) to one or more children or one or more irrevocable trusts exclusively for one or more children without property tax reassessment.

Admittedly, Proposition 19 changed those rules. Starting February 16, 2021, the ability for a parent to transfer to heirs up to $1,000,000 in assessed value of a home or real property of any kind that is NOT being used as a primary residence – is no longer possible in most cases.

Previous ability for a beneficiary or heir to avoid property tax reassessment of inherited property that is not being used as a primary residence by the parent, i.e., the decedent, or by the beneficiary or heir inheriting the property – no longer exists; unless things change.  In other words – inherited real estate being used as investment property, and rented out to vacationers, is no longer possible.

However, the process of inheriting property while keeping a low property tax base with the use of a trust loan from a trust lender, while buying out a sibling’s inherited property shares is still very much alive and well in California.  You simple  need to know how to take advantage of the system properly.

So to reiterate, the transfer of a non-primary residence now must be reassessed at what attorneys call “fair market value”, simply meaning current high property tax rates… Except when beneficiaries are using the residence as a primary or principal residence; and the current property tax rate of the residence at the time of transfer does not exceed the parent or decedent’s so-called “assessed value” by more than $1,000,000.  

Assembly Constitutional Amendment 9: Efforts to Reinstate Prop 19

If the inherited residence exceeds the assessed value by more than $1,000,000 the inherited property’s assessed value will be assessed at current market rates – minus $1,000,000.  And these changes are what Jon Coupal at the Howard Jarvis Taxpayer’s Association and political friends of theirs are trying to walk back or permanently stall with their Assembly Constitutional Amendment 9 (i.e., ACA 9), introduced by the young CA Assemblyman, Mr. Kevin Kiley.