What Are the Crucial CA Proposition 19 Property Tax Benefits?

CA Property Tax Benefits, 2022 Onward

Despite confusing, often deceptive messaging, designed at all  costs to get Proposition 19 voted into law in The Golden State of  California – it’s clear to most Californians that Proposition 19 property tax breaks really will increase property tax relief measures for homeowners over age 55, plus add exclusions from  property taxes for homeowners who are victims of wild-fires and other natural disasters – plus homeowners who are seriously disabled. 

Despite a little juggling with the facts, the slick promotion to get this tax measure voted into law, with attractive promises of improved tax exemptions… it did in fact appear to be a legitimate, believable package of property tax relief benefits for residents of the state of California — as long as you ignored the fine print.

What used to be Proposition 60 (voted into law in 1986, the same year Proposition 58 was passed), helped homeowners over 55 to sell their house and move into another home valuated at the same amount or less – in the same county – maintaining a low property tax base… This has been rolled into Proposition 19, and can be taken at face value… as long as the  California State Board of Equalization (BOE) continues to function as a non-political, fact-based source of CA property tax info – which, according to experts and state economists, it does appear to be doing. 

Experts Weight in on Proposition 19

Gaye Chun, the City National Bank wealth planner confirms, telling us: “The idea was to make it easier for seniors to move without worrying about a huge jump in their property tax bill that might be difficult for them to pay.”

Bruce M. Macdonald, an attorney with Carico Macdonald Kil & Benz LLP in El Segundo, CA agrees, stating, “If someone over 55 sold a house for $5 million, but they were paying taxes on a lower assessed value based on their original purchase price, they could buy a new house for $2 million and still pay taxes at their original, lower tax assessment.” No doubt, a truly significant improvement to a tax hike reflecting current or “fair market” property reassessment.

Tax Assessments and Property Tax Breaks in California

Property taxes are typically based on assessed value rather than current fair market value.  In most states, tax assessments are conducted every one to five years and are not changed when a property is sold or transferred as a gift or inheritance.

In California, to everyone’s relief, property tax relief measures have been voted into law to limit tax assessed value of property, as well as capping property tax rates, plus enabling beneficiaries inheriting property from parents to avoid high property tax reassessment – establishing a low property tax base right away, when inheriting a home from parents.

Much has been said about property tax relief on the critical side, by realtors and high net worth business people that benefit from tax increases… However, if you talk to working families, middle class Californians, and even upper middle class homeowners – you will hear nothing but praise for property tax relief laws such as Proposition 13, passed in 1978; and Proposition 58, passed in 1986 – enabling middle class families to avoid CA property reassessment… making tax breaks available to homeowners and beneficiaries such as property tax transfer; with the ability to transfer parents property taxes when inheriting property while keeping a low property tax base; with the right to keep parents property taxes basically forever… inheriting property taxes without issue from Dad or Mom whenever they pass. 

Giving beneficiaries the ability to avoid CA property reassessment through parent to child transfer and a parent-to-child exclusion is a major asset to middle class residents in California; as well as being able to  take advantage of Proposition 19, in conjunction with a loan to an irrevocable trust to buyout siblings’ share of inherited property – keeping a close eye on mistakes to avoid when transferring a property tax base.  Now, the ability to avoid CA property reassessment and other property tax relief  benefits are under serious threat.  

All of  this was planned, launched and protected by Howard Jarvis and his famous  Taxpayers Association, as well as others who joined in the effort beginning in the mid 1970s, when property tax increases were basically out of control… often forcing elderly widows and others living on a fixed income, literally onto the street with their furniture piled up around them on the sidewalk!

Not the way anyone with a conscience would want elderly Californians to end up, in the Autumn of their life – simply to benefit a few real estate firms who will make more money from increased sales (with more homes for sale due to increased inability to pay rising taxes), with the CA Legislature piling up tax revenue higher and higher as property tax revenue increases. Perhaps helpful to a few in the short term… but with dire consequences in the long term for the entire state.

Experts Weigh In on CA Property Tax Relief

“In 1978, California voters approved Prop. 13, a constitutional amendment known as ‘The People’s Initiative to Limit Property Taxation’ that was meant to protect older residents who were unable to keep up with large property tax increases”, Gaye Chun tells us; and adds, “Several propositions since then have tinkered with property taxes.”

Homeowners who plan to transfer their residence to their children now or as part of their inheritance should seek professional advice, so they understand the impact of the new property tax rules”, asserts Bruce Macdonald, the well known attorney in El Segundo.

Current changes in property tax rules could be significant for some families, because it’s not that unusual in California to have a house that was assessed at $150,000 when the parents bought it, to be worth $5 million 40 years later,” Mr. Macdonald, Esq. explains; adding, “When the kids could inherit their parents’ house at the assessed value of $150,000, the property taxes would be approximately $1,500. Now, if the house is assessed at $5 million, that would incur a significantly higher tax bill!”

Experts in California tell us that this points to all the more reason for repealing Proposition 19… as well as adding more concrete protections to keep Proposition 13 safe from anti-property-tax-relief realtors and the politicians that are firmly in their pocket.

New Property Tax Relief Laws & Belief in the CA Legislature

Property Tax Transfers

Property Tax Transfers

Can California rely on Property Tax Exclusions from Prop 19?

Despite the growing waves of criticism and anxiety from residents in California, regarding Proposition 19, given all the cheer-leading from the California realtor community, more or less led by the CA Realtor’s Association – state sponsored public relations continues to convince us how fabulous Proposition 19 truly is.

We are constantly reminded that, despite certain obvious limitations affecting homeowners and beneficiaries inheriting property from their parents, we do have new property  tax exclusions from Prop 19.   Proposition 19 is providing us with tremendous property tax breaks which did not exist previously, with Proposition 58 tax relief.

Truth?  Publicity?  Or happy talk… 

Supposedly, despite new property tax exclusions from Prop 19,  the state will see an extra yearly revenue of a billion dollars plus, to help schools in towns and cities – although the California State Board of Equalization (BOE) is a little short on concrete specifics and details, in terms of how much revenue is actually expected to come in overall from these new property tax laws; and specifically how much money will go to fire departments, and how much will be allocated to help seniors and the elderly… and homeowners with serious infirmities. 

Moreover, Proposition 19 also seems to be rather fuzzy, with respect to anticipated property tax revenue that is supposedly going towards balancing budgets – possibly with provisions to step up the state’s recovery from Pandemic driven financial losses.

Additionally, beyond property tax exclusions from Prop 19 that we already know about, and hope will be consistent – extra tax revenue from Proposition 19 is supposedly expected to furnish all sorts of other “significant added protections” for CA residents – although proponents of Prop 19 as well as BOE are extremely vague, as far as articulating precisely what these “protections” might be every year.  Again – fact based info dissemination?  Or simply PR happy talk…

Prop19 revenue for city and county fire departments & schools

Proponents of Proposition 19 singled out supporters of Proposition 13 property tax relief as creators of “tax schemes” and “deceptive practices” – “costing local governments and schools up to $1.5 billion every year” – without describing exactly what those “tax schemes” and “deceptive practices” actually are… And what those numbers that  supposedly cost the school system a small fortune really look like – above and beyond vague projections designed to scare tax payers half to death.  

We also frequently hear about “unfair tax loopholes” used by supposed “East Coast investors” and “celebrities” or “wealthy non- California residents” as well as “trust fund heirs” – who are perpetually unnamed, wealthy property owners, who supposedly avoid paying “their fair share of property taxes on vacation homes, income properties, and beachfront rentals they own in California.”

An obvious reference to the Lloyd Bridges family, the only family in 40 years that has been named as property tax perpetrators of the above so-called violations, whose heirs happened to inherit a nice beach home, using Proposition 13 to cap property taxes at 2%… subsequently renting the home out at $16,000 per month to vacationers from out of state. (As opposed to residing in the property as a “primary residence”.)

No other family has ever been named and singled out as using Proposition 13 for such “nefarious purposes”.  It appears that the justification for Proposition 19 limitations were based on this one family… this one inheritance.

Maintaining the spirit of Proposition 13 and Prop 58

Proponents of Proposition 19 insist that their favorite tax measure will “continue to preserve the intent of Proposition 58 and Proposition 193” – keeping family homes affordable when parents and grandparents pass on their family home to children and grandchildren to use  as a  “primary residence”. 

As we all know, this is partly true, and where  limitations are concerned… partly not true. Fortunately, beneficiaries can still     use a parent-to-child exclusion in conjunction with Proposition 19.

When inheriting property while keeping a low property tax base,  smart beneficiaries are still able to buyout property tax shares from siblings, with advice from a Property Tax Consultant, and funding from a Trust Lender such as Commercial Loan Corp.

We continue to hear about the $1 billion per year in Prop 19 generated revenue that is going to fire departments and unions, school systems and local governments.  We also hear about that revenue somehow being used for emergency services, public hospitals, general healthcare, homeless folks, and housing projects. However… again, no specifics. Just general allusion to a lot of hopeful initiatives. 

At the same time Californians hope that they will be able keep parents property taxes, and take advantage of property tax transfers to retain a low property tax rate from this parent-to-child transfer upon inheriting property from parents, while inheriting property taxes… to avoid property tax reassessment – typically through a parent-child transfer.

Homeowners and beneficiaries are waiting to see what specific applications will be readily available to them:

• to limit property tax increases for victims of wildfires, replacing damaged or destroyed property; limiting damage from wildfires on homes through supposed funding for fire protection and emergency response.

• to cap property tax increases on family homes used as a primary residence by protecting the right of parents and grandparents to pass on their family home to children and grandchildren as a primary residence.

• to take advantage of supposedly “thousands of housing opportunities” by making homes available for first-time homeowners and families in all 58 counties across the state of California.

Ultimately, Californians are taking for granted that there is a cap on property tax increases for primary residences for homeowners over 55 years old, people with severe disabilities, and victims of natural disasters or wildfires by removing county restrictions – apparently allowing these residents to locate a home that “better fits their needs”.

State leadership may be asking residents to stretch their trust a long way; without any iron-clad guarantees. Just a long list of top-down assurances. And residents as well as estate attorneys and tax lawyers, as well as accountants, are wondering, going forward into a murky future, what they can question… and what they can really rely on.

Saving on California Property Taxes in 2022

California Property Taxes

California Property Taxes

Using reassessment to your advantage

With all the talk in 2022 in California about losing money on property taxes from property reassessment – or accidentally triggering reassessment – we should all bear in mind that reassessment can also work in our favor, if property value drops. Of course, while you would rather see the value of your home increase, if there is a down-market and property value drops…. our property tax bill should drop as well.

Property tax consultants tell us if we transfer our property and trigger reassessment, we can reset the property tax basis and future increases to the lower value. If you have a taxable estate, you might want to may consider transferring property out of our estate. This will not only reset the property tax basis to a lower value, but also potentially reduce estate tax.

On the other hand, many homeowners favor a parent-child transfer to avoid property tax reassessment, as opposed to, for example, using an LLC approach or other lesser known processes – as long as the transferred home is, initially, a primary family residence and the heir receiving the property is moving in as a primary residence, plus the exclusion is claimed inside 12 months from change in ownership… remaining aware of the fact that the first $1,000,000 is not reassessed.

Buying Out Siblings’ Inherited Property With a Trust Loan

We also have to remember in California in 2022 that, working in conjunction with Proposition 19, a loan to an irrevocable trust allows a beneficiary to buyout inherited property shares from co-beneficiaries looking to sell their inherited property… thereby speeding up the trust distribution process.

A trust loan also generates a much higher profit for the beneficiaries selling their inherited property shares, by avoiding expensive home prepping for a sale, and avoiding a 6% realtor commission, legal fees, and other pricey closing costs. All in all, avoiding property reassessment and higher costs for all concerned.

When a trust loan is used to process trust distribution to co-beneficiaries, each beneficiary or sibling gets an additional $15,000 in distribution as opposed to selling the home to a conventional buyer. The family member keeping a family home also saves money – generally $6,200 or more per year in property tax savings by avoiding property tax reassessment on an inherited property.

That’s why many families inheriting a home from parents go to a reliable trust lender to be able to take full advantage of Proposition 19 tax benefits.  Beneficiaries and homeowners continue to take advantage of  Proposition 19 and Proposition 13 and basic property tax transfer and related tax breaks… keeping a low property tax base when inheriting a home – inheriting property taxes at a low rate from parents; the right to keep parents property taxes,  naturally, the parent-to-child transfer and parent-to-child exclusion, and as we have discussed here – buying a siblings’ share of inherited property or buying out numerous co-beneficiaries.  When you put it all together, saving a good deal of money on property taxes from the process.

Repealing California’s Death Tax

Repealing California's Death Tax

Since the passage of California Proposition 19, more and more families are receiving notices that the death of a parent has triggered reassessment of a family property and sharply increased their property tax bill. In an attempt to stem this, the Howard Jarvis Taxpayers Association has filed a ballot initiative with the Attorney General’s office to repeal California’s Death Tax.

In November of 2020, many voters were unaware that California Proposition 19 included a provision that affected inter-generational transfers of homes. Prior to California Proposition 19’s passage, a parent could transfer a home of any value plus up to $1 million of assessed value of other property to their children, without reassessment to market value. However, effective February 16, 2021, this is no longer the case.

The Howard Jarvis Taxpayers Association is fighting to modify Prop 19 and restore the ability of parents to pass property to their children without any change to their tax bill. Commercial Loan Corporation is working with them to gather the signatures required to get it on the ballot. The new initiative is titled the Repeal the Death Tax Act. It would reverse the Proposition 19 changes to the rules affecting inter-generational transfers. To further protect California families, the measure includes an inflation adjustment for properties in addition to the primary residence. Up to $2.4 million of assessed value would be excluded from reassessment upon transfer, offering significant tax benefits to families that own small business properties or rental units for income. A primary residence of any value would be excluded from reassessment.

If you are interested in helping collect signatures and think that you can collect several, you can have a petition mailed to you along with complete instructions on how to do so. The deadline to collect the necessary signatures is April 29, 2022 so the time to act is now to repeal California’s Death Tax!

You can request a petition online here, or call Commercial Loan Corporation at 877-464-1066 for more details.

New CA Property Tax Relief Transferring Low Property Tax Values

Transferring A Parents Property Tax Value In California

Transferring A Parents Property Tax Value In California

2022 Tax Relief: Inherited Properties & Replacement Homes

The 2021 CA constitutional amendment, Proposition 19, otherwise known as the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act”, expands a surprising number of tax breaks (with respect to “replacement residence” tax relief benefits) mainly for homeowners over age 55 or suffering from a severe disability… making it possible to transfer a low property tax base from an original home to a new residence, or “replacement home”.

Californians also able to take advantage of expanded property tax breaks are homeowners with a damaged or completely destroyed home, caused by a natural disaster such as a flood, earthquake, or wildfire, can now move to a replacement residence, up to three time – in any of California’s 58 counties, expanded from previous limits of only ten counties allowing the transfer of a low property tax base to a new residence. This is actually quite ironic, as senior and elderly Americans, and folks with disabilities, generally find themselves either ignored or on the short end of the stick, so to speak. So this represents a societal shift, for the better.

However, it is important to point out that Proposition 19 also imposes new limits on property tax benefits for inherited family property, limiting uses of the popular 1986 Proposition 58 “parent-to-child exclusion” from reassessed (i.e., increased) property taxes; limiting parent-to-child transfers of property by narrowing usage in various ways.

This necessitates primary or principal residence (as opposed to owning and renting out investment properties) for both parents and beneficiaries, along with some other, minor, limitations.  On the other hand, beneficiaries do have a full year to move into an inherited primary home, only requiring a minimum of one heir to move in.

Buying Out Siblings & Keeping a Low Property Tax Base

Moreover, beneficiaries still have the ability to keep their parents’ family home, with their parents’ low property tax base, while taking advantage of Prop 19’s parent-to-child exclusion;  always staying focused on inheriting property taxes from parents during a typical  property tax transfer. Avoiding property tax reassessment being a top priority at all times.  For many beneficiaries getting a loan to a trust is critical, generally to buyout problematic co-beneficiaries insisting on selling their inherited property shares.

This typically involves a 6-figure or 7-figure loan to an irrevocable trust from a trust & estate lender, for example like industry leader Commercial Loan Corp, working in conjunction with Proposition 19 – supplying beneficiaries who are selling their inherited property shares with more money than a conventional buyer is likely to offer.

Avoiding a realtor, bypassing their standard 6% commission, and side-stepping the usual legal fees and transaction charges, leaves a good deal more cash, from a trust loan, to equalize beneficiaries selling their share of inherited property.  Basically, a win-win transaction all the way around.

Property Tax Relief Forms

  1. BOE-19-B, Claim for Transfer of Base Year Value to Replacement Primary Residence for Persons at Least Age 55 Years[External PDF]
  2. BOE-19-C, Certification of Value by Assessor for Base Year Value Transfer[External PDF]
  3. BOE-19-D, Claim for Transfer of Base Year Value to Replacement Primary Residence for Severely Disabled Persons[External PDF]
  4. BOE-19-DC, Certificate of Disability[External PDF]
  5. BOE-19-V, Claim for Transfer of Base Year Value to Replacement Primary Residence for Victims of Wildfire or Other Natural Disaster[External PDF]
  6. BOE-60-NR, Notice of Rescission of Claim to Transfer Base Year Value to Replacement Dwelling Under Revenue and Taxation Code Section 69.5 (Propositions 60/90/110)[External PDF]
  7. BOE-502-A Preliminary Change in Ownership Report[External PDF]
  8. BOE-502-AH Change in Ownership Statement[External PDF]
  9. BOE-502-D Change in Ownership Statement Death of Real Property Owner[External PDF]

Base Year Value Transfers for Homeowners 55+ or Disabled

Proposition 60/90 and 110 allowed persons over 55 or severely and permanently disabled persons to transfer the taxable value of their existing home to their new replacement home, so long as the market value of the new home is equal to or less than the existing home’s value and located in one of ten tax relief portability approved counties in California.

That left 48 counties not participating with tax breaks allowing the transfer of a low property tax base from an original home to a new replacement residence. When dealing with damage from a natural disaster like the wildfires California has been contending with lately… Or simply because you’re over the age of 55,  or suffering from a serious physical disability.

Of course the good news is that Proposition 19 now allows eligible homeowners to transfer the taxable value of their existing home to their new replace, and wish to move to a replacement home, or to new residence – of any value, anywhere within the state, up to three times (rather than once, with limited county choices and limited assessed dollar values – as it used to be until 2021).

Age 55+ and Disability Tax Relief Forms

  1. Claim for Transfer of Base Year Value to Replacement Primary Residence for Persons at Least Age 55 Years: BOE 19-D[External PDF]
  2. Claim for Transfer of Base Year Value to Replacement Primary Residence for Severely Disabled Persons: BOE 19V[External PDF]
  3. Certificate of Disability: BOE 19DC[External PDF]

Disaster Relief

Proposition 50 stipulated that a base year value of a home or property that is legitimately destroyed, or damaged beyond the point of residing there, by a disaster or wildfire verified as legitimate by the Governor may be transferred to comparable property within the same county.

Proposition 171 stated that the transfer of the base year value of a principal residence to one of 10 counties that has adopted these tax breaks. However, Proposition 19 now permits homeowners to move to a “replacement home” of higher assessed value than a previous primary residence – and transfer the lower tax base with an adjustment for the value difference when a home is damaged or destroyed by a wildfire or some other natural disaster.

Proposition 19 is covered at California State Board of Equalization  
Natural Disaster and Replacement Residence Form



Identifying & Accessing CA Property Tax Breaks

California Proposition 19

California Proposition 19

Californians more or less take for granted the fact that the tax breaks provided by property tax measure Proposition 13, passed by a veritable landslide by voters in 1978 – locks in a home’s “base-year value” to reflect what it was when the real estate changed ownership most recently. As we all know, this caps yearly property tax increases at a 2% tax rate – up until the time the property changes ownership again.  All property tax relief measures in California exist to allow property owners of all kind to continue avoiding property reassessment.

As most of also know by now, the portion of property that is transferred, upon changing ownership, is reappraised to current market value. Obviously, if that real property has appreciated in value since the new transfer – the outcome could be a serious increase in the new owner’s property tax bill!

On the other hand, California does allow for exceptional property tax exclusions to the rules and regulations that now govern a change in ownership for married or unmarried couples, families and property co-owners that wish to avoid property tax hikes. Naturally, there are requirements. California’s property tax exemptions are written into the California State Constitution (Article-13), unlike many other states, which utilize exclusions  from property reassessment that are controlled by state tax laws  or local rules and regulations. 

California initiatives managed by County Tax Assessors, that are based on personal, individual data, as opposed to state statutes, would be, for example:

A primary residence: of which the initial $7,000 of the full value of a home is excluded, or exempt, from property tax.

Combat Veterans: can qualify for a substantial exemption. This can be claimed by someone serving presently in the military who is no longer serving, but has been honorably discharged. The same applies, under similar requirements, to an unmarried surviving spouse or the parent of a veteran that is deceased. Although, whomever is submitting the claim cannot own real estate or personal property that exceeds more than $5,000 if the claimant is single, or $10,000 for a couple that is submitting.

Disabled veterans: can receive a larger exemption. Exactly what that number is depends on income, age, and specifics regarding the disability. BOE website explains as follows – https://www.boe.ca.gov/proptaxes/dv_exemption.htm#Description

Senior Homeowners: over the age of 55 who purchase a new primary residence in any of the 58 counties in California, and sell that residence, can transfer the base-year value to the new primary residence – if the value of that property is equal to, or lesser than, the value of the previous home… Or if it is newly constructed inside of 2-years from the sale of the original home. As the BOE discusses on their site

Family transfers: are usually described in real estate or tax literature as children leaving property to parents, and parents to their children, but we all know 99% of the time it is a parent leaving a home or business property to their children/heirs.

Proposition 19: which was Proposition 58, still allows your surviving parent to leave you their primary residence – thereby  avoiding  property reassessment as long as you’re moving in as your primary residence, with an entire year to settle in.  Upon inheriting property taxes under these requirements, property tax transfer will typically result in the ability to transfer parents property taxes successfully – to keep parents property taxes for as long as the residence is resided in by the inheritor.

Avoiding property reassessment, similar to a Parent to Child Property Tax Transfer, is also possible if you inherit a home from your grandparents – however,  only should both your parents be deceased.  If the difference between the inherited property’s assessed value and current market value is over $1,000,000 upon inheritance and property-transfer, the newly assessed value will be its final current market value, minus $1,000,000.

Disaster relief: In some counties, if your home has been substantially damaged or destroyed by a disaster, you qualify for a reduced assessment.

Does a Change in Ownership Affect CA Property Taxes?

California Change in Property Ownership

California Change in Property Ownership

Californians who make it their business to know – now understand that triggering property tax reassessment to “a new Base Year Value” as a result of new construction to a home, or a complete change in ownership – which makes it virtually impossible to establish  a low property tax base; and results in a yearly tax rate that increases abruptly to  current or “fair market” rates.

Translation in everyday language – you pay much higher property taxes every year. For example, the different between $600 per year and $9,000 per year. Significantly higher property taxes.

Every County Tax Assessor in California, in all fifty-eight counties, records and reviews every single property deed in every county, to figure out which homes and various other real properties require reappraisal, and which do not. The Tax Assessors also determine ownership changes with other investigative tools such as such as kept records from homeowner self-reporting, or from records of building permits; from newspaper files; or field inspections.

When a County Tax Assessor has determined that a property has changed ownership, Proposition 13 stipulates that the County Tax Assessor must reassess that property to its current (i.e., fair market) tax rate, as per the date of change of ownership.

Because property taxes in California are based on a property’s assessed value – at the time of acquisition – the property taxes will be increased if the current market rate is higher than the original assessed Prop 13 base year value adjustment. Therefore – if the current market tax rate is lesser than the previous adjusted base year value assessment, then taxes on that property will go down. Which is what everyone wants.

It is important to note, however, that a portion of ownership of that property may be reappraised. Let’s say that 50% of a home is transferred under Proposition 13, and the changes that the Tax Assessor is going to reassess is 50% of the home at the current market rate, as per the transfer date, so 50% will be deducted from the base year value, under Proposition 13 property tax relief… 

Typically, when someone buys a home, the home goes through a “change in ownership” and 100% of the home is reassessed at full current market value.   Even if the outcome of transferring real estate is a change in ownership, there are a number of exclusions from paying current tax rates – and so certain homes or other real estate will often not be be reappraised under these sorts of home transfers.

If a property owner files the proper claim, an exclusion from paying updated current property taxes will kick in as long the owner’s property, or portions of this property, are correctly excluded from reassessment.

The best way to cover changes in ownership that are excluded from automatic reassessment, or reassessment by claim; is to enlist the help of a tax attorney, a property tax consultant, or a trust lender who specializes in establishing a low property tax base for heirs upon inheriting a home from a parent.

Frequently, this will assist beneficiaries in buying out inherited property shares from co-beneficiaries through a loan to an irrevocable trust, which realtors and property tax specialists call a transfer of property between siblings or a sibling-to-sibling property transfer – working in conjunction with a California Proposition 19  parent to child property tax transfer on an inherited home – a parent-to-child exclusion (from property tax reassessment at full, current market rates), to establish a low property tax base.  

Naturally, this line of property tax relief, based on a parent’s property  also includes the ability to transfer property taxes when inheriting property taxes from a parent. Under these tax breaks, a property tax transfer like this can help heirs keep parents’ property taxes basically forever, based on a parent-child transfer; or a parent to child exclusion from reassessment – to legally avoid property tax reassessment.

You can always consult your Tax Assessor, however it is generally in the Tax Assessor’s best interest to charge you the maximum amount possible. A property tax consultant or trust lender, on the other hand, is motivated to save you money on taxes, not see you spend more.

New CA Parent-Child and Grandparent-Grandchild Property Transfer Rules Under Proposition 19

California Prop 19 Rules for Transferring Property Taxes

California Prop 19 Rules for Transferring Property Taxes

As an updated review of sorts, we would like to revisit certain Proposition 19 issues governing California property taxes. These issues have become particularly important to beneficiaries and new homeowners in particular throughout the state. The following updates address measures that are especially popular with homeowners…

In terms of basics, it’s important to reiterate that under Proposition 19 an inherited home can be transferred from a parent to their child/heir without triggering property tax reassessment, with the right to keep parents CA property taxes. However it’s essential these days to pay more attention to deadlines and filing stipulations — whereas previously this was not as necessary.

Beneficiaries frequently want to know if a parent died prior to Feb 16, 2021, but the change in ownership forms were not filed with the assessor until after Feb 16, 2021 — if the parent-to-child exclusion (from current property tax rates) is applied under former Proposition 58 measures, or if it is applied under current Proposition 19 tax measures, with the ability to keep parents CA property taxes…. The confirmed answer is that an inherited property transfer is calculated by date-of-death to determine the official date of change of ownership.

A good number of trust beneficiaries inheriting real property from a parent, considering their option to buyout siblings’ inherited property shares, often ask trust lenders if a parent is leaving a family home to three siblings/heirs, will that family home be the primary family home of all three heirs — or just the one heir.  And it turns out that only one sibling/heir is expected, under California tax law, to take over that family home as a primary residence. Yet all three siblings still have to be valid heirs.

Beneficiaries and heirs of an active estate, inheriting assets, often ask their attorney about the correct time-frame to establish an inherited family property as their “primary family home”…  Estate attorneys typically confirm that beneficiaries inheriting a house from a parent who wish to keep parents CA property taxes on a property tax transfer, when inheriting property taxes, are expected to establish that house as their “principle family residence” within 12-months of the purchase or transfer of that inherited property, if they want to avoid property tax reassessment using their existing ability to transfer parents property taxes, when inheriting property taxes from a parent. 

Yet heirs are still being able to take advantage of their right to a parent to child property tax transfer on an inherited home  and a  parent-to-child exclusion; even with all these confusing and sometimes baffling new rules for property tax transfers in California  additional intra-family options are available to heirs such as buying out co-beneficiaries’ property shares on a sibling-to-sibling property share while keeping a low property tax base when inheriting a home.

If beneficiaries or heirs are inheriting a family farm, they often look to their estate lawyer, or trust lender, for answers… if they are looking to buyout co-beneficiaries to retain the inherited property for themselves – at their parent’s low property tax base – to find out if the Proposition 19 parent-to-child exclusion (from current tax rates) also applies to family farms.

In other words, does a family farm also have to be a principal or primary residence of the inheriting beneficiaries or heirs… And the answer is no, the family farm does not have to be the principal residence of the inheriting parties in order to qualify for the parent-to-child exclusion. A family farm is viewed as any real property which is under cultivation or which is being used for pasture or grazing, or that is used to produce an agricultural product.

Many Californians want to know if Proposition 19 is retroactive; if property transfers that have already benefited from Proposition 58 parent-to-child exclusion benefits are going to be reassessed… And they are informed that Proposition 58 applies to transfers that were implemented on or prior to Feb 15, 2021. The current Proposition 19 ability to keep parents CA property taxes applies only to transfers that take place happen after Feb 16, 2021.

An inherited house, when transferred from a parent to their child/heir – is expected to be the “primary family home” of an heir. Beneficiaries or heirs frequently ask their property tax consultant or attorney how long they need to reside in or maintain their inherited property as “a primary family home” to be able to retain the parent-child exclusion. The answer is unequivocally that the Prop 19 exclusion applies only as long as the heir, or beneficiaries, reside in inherited  property as their “principle family home”.

In the event that a family home is no longer used as the primary residence of a beneficiary inheriting a home, that property should receive the factored base year that applies, had the family home not qualified for exclusion at the time of purchase or transfer. The new taxable value will be the fair market value of the home on the date of inheritance, adjusted yearly for inflation. 

Hence, an updated look at certain new parent-child and grandparent-grandchild property transfer rules and regulations under Proposition 19. 

How the Role of a Trust Lender Can Impact Beneficiaries in California

Trust Loans in California

How to get a trust loan in California

As most Californians know, property tax measure Proposition 13, voted into law in 1978, capped property tax rates at 1%–2%. Property could now be reassessed on a property transfer from parent to child, with the right to transfer parents property taxes protected by the parent-to-child exclusion which was folded into tax measure Proposition 58, voted into law in 1986, and as you know is now revised, having morphed into 2021 Proposition 19 property tax law, with new rules for property tax transfers in California…

This continued the exemption for property transfers between parent and child, avoiding property tax reassessment with the right to transfer parents property taxes when inheriting property taxes from a parent; with the ability to keep parents property taxes long-term with this type of standard Proposition 19 protected property tax transfer, parent to child transfer and of course parent to child exclusion.

When there is only one heir, child of the parent, property transfer is relatively simple, knowing you have the right to transfer parents property taxes involving only one heir.  Conflict typically surfaces only when there are two or more siblings inheriting property shares… with one heir looking to retain the parent’s home, while the other heir or heirs insist on selling off their inherited property shares; generally calling for a “non-pro-rata” trust distribution, meaning that each heir with an interest in the inherited property receives an equal proportion of the entire estate with the help of a trust lender and a Prop 19 trust loan – however not necessarily of each asset. It’s important to note that non-pro-rata distribution by a trustee can have a major impact on property taxes.

Not using a Prop 19 trust loan solution, the use of personal funds to pay off a sibling co-beneficiary’s interest in a home would be viewed as a “change in ownership” therefore the outcome of this transaction would trigger property reassessment of that beneficiary’s inherited property share. If there are two heirs, each having inherited 50% of the property, the remaining 50% would be open to property tax reassessment. On the other hand, if there were three beneficiaries and only 1/3 of the property were retained, 2/3 beneficiary interest being bought out – 2/3 of the property would be vulnerable to property tax reassessment.

However, with the help of a trust lender funding an irrevocable trust, buying out the beneficiary or beneficiaries looking to sell off inherited shares – the fact that the trust is actually borrowing the funds to equalize distribution to the siblings that are selling out, and funding is not in fact distributed to the sibling or siblings themselves – property tax reassessment is successfully avoided.

For example, let’s examine the Anderson family in North Hollywood, who owns a home valued at $800,000, free and clear of any debt. In other words the family owns the house outright. Assessed value is $100,000. Let’s say, for the sake of argument that sibling Nina insists on selling the home, and wants a cash for her share; while another sibling, Jasper, is determined to keep the home.

(Option A) Jasper cleans out his savings account and pays out $400,000 to buy out Nina’s inherited property shares. This results in a “change of ownership” with respect to Jasper’s 50% property buyout, and the assessed outcome is a 50% property tax reassessment with a significant increase in property taxes.

(Option B) Jasper enlists the help of a trust lender, who provides a $400,000 loan to an irrevocable trust, along with getting approval to allow the trust loan to work in conjunction with Proposition 19; enabling Jasper to keep his parent’s low Proposition 13 protected property tax base. The third-party trust lender also sees to it that that funds are distributed equitably to Nina – in fact with more cash than any outside buyer would be likely, realistically, to offer – with no change in ownership, and no property reassessment; and therefore no property tax hike. The trustee at this point transfers the entire property to Jasper who plans to pay off the $400,000 loan to the irrevocable trust by cashing out a life insurance policy.

Thad Farrell, Proposition 19 / trust loan account manager (Commercial Loan Corporation at 877-756-4454) at the Commercial Loan Corp trust lending firm in Newport Beach, sums up the process as follows:

Usually siblings that want to retain inherited property from parents come to us first, generally after being referred to us by a law firm. Middle class families that can’t afford to pay reassessed taxes on an inherited home… Which pretty much sums up most families these days! Siblings inheriting a home have two options. They can sell or keep their inherited property. In other words, your family has to make up their mind – what they want to do, sell or keep. Selling it is far more expensive. By keeping the home, each beneficiary looking to sell out receives approximately $15,000 extra in a cash trust distribution when compared to selling the home to a regular buyer; because they avoid costly realtor and real estate sale expenses. A realtor typically charges 6%, there can be costs to prepare the home for sale and closing costs such as title, escrow or assistance with buyer closing costs on top of that… Each beneficiary keeping the inherited home winds up saving on average $6,200 (each) in yearly property taxes. So do the math, for starters. Whereas, if the property is reassessed – the cost can be very high.

At the end of the day, there are positive emotional outcomes from this process as well as financial savings and extra funds… However the key result is the fact that when everyone walks away from using a trust loan to take advantage of the proposition 19 parent to child property tax transfer, they all understand that they have just completed a win-win transaction… In other words, unlike most business transactions where there is often a winner and a loser – in this scenario everybody wins and no one loses.

 

New Rules For Property Tax Transfers In California

Rules for California Property Tax Transfer

The new rules for California Property Tax Transfer in 2021

To Transfer Property Taxes: New Rules & Regulations 

When Proposition 19 was voted into law in Nov 2020, taking affect in Feb of 2021 – a learning curve was suddenly in effect for new homeowners and beneficiaries inheriting property from parents. It became essential, especially for middle class and upper middle class families, to quickly learn about changes to tax relief laws that would impact both existing trusts and inherited real estate.

For example, a “qualified personal residence trust” (QPRT), which is a trust that is established with the intent of allowing parents to continue to live in a house; and once that period of time has ended the balance of the interest is transferred to beneficiaries.

Put simply, a QPRT is a special kind of irrevocable trust that allows the person who created it to remove a primary residence from his, or her, estate so gift taxes can be reduced when transferring assets to a beneficiary.

Buying Out Sibling Property Shares While Keeping Your Inherited Home at a Low Proposition 13 Tax Base

As many Californians know, a loan to an irrevocable trust can also be used to buyout siblings’ property shares, inherited from a parent… while allowing beneficiaries who wish to retain that property, to transfer property taxes and keep that home at their parents’ low Proposition 13 protected tax base. It’s essentially a home equity loan on inherited property, made to the trust.

What a lot of people don’t know is the fact that the trustee and beneficiaries who are intent on keeping their inherited property will frequently borrow money to have their trust funded by a qualified trust lender licensed in the state of California so that an equal distribution of the trust can be made in order to meet California Proposition 19 Board of Equalization requirements.

Typically, beneficiaries enlist funding from a trust lender when a trust does not have sufficient cash to make an equal distribution to all the beneficiaries who are looking to sell their inherited property. Hence, the ability to transfer property taxes, mainly to transfer parents’ property taxes; and avoid property tax reassessment of an inherited home. Usually a savings of over $6,200 per year in property taxes. 

Avoiding ‘Fair Market Rates’ with Proposition 19 Trust Loan Exclusion from Property Reassessment

Changes to California property tax relief in 2021 are a challenge to  understand.  Trusts, Californians have discovered, are now used for more purposes than merely deferring property taxes for a few months. Californians have also discovered that they can avoid being reassessed at fair market rates by moving into inherited property as their principle residence  – bearing in mind a $1,000,000 cap on an exclusion from existing property tax rates.

The benefits of making a lifetime transfer of inherited property has to be compared to a transfer at the passing of a parent, which may cause you, as an heir, to inherit a “stepped-up basis” in transferred property. In other words, when you inherit assets that increased in value from when your deceased parent owned it, the asset’s “basis” is increased to the property’s current or “fair market” value on the date of the parent’s passing.  Unless you take steps to avoid this increase, to be able to transfer property taxes successfully, and avoid property tax reassessment altogether!

Saving Money on Property Taxes With Help From Experts!

When purchasing a new home or inheriting your parents’ residence
it makes sense to call a specialist experienced in the use of irrevocable trust loans to maintain your parent’s low property tax base. If you are inheriting a home, or expect to inherit a home and plan to transfer the low property tax base to a new home down the road, through an irrevocable trust loan in conjunction with Proposition 19, or Prop 58.

If you’re inheriting a home from a parent and wish to avoid property tax reassessment you still have all the tools to do so, as long as all new requirements are met.  If you’re a beneficiary, a brand new homeowners, you can  transfer parents property taxes when inheriting property and thus inheriting property taxes; with the ability  to keep parents low property tax base, as long as you live in your inherited home. 

When it comes to keeping a low property tax base, with Prop 58 [or now Prop 19] and a trust loan, I always bring my clients to Commercial Loan Corp.  Their loans to trusts give my clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America.  They’re self funded, and that’s why they can extend easier terms to clients…

When your parents die, and your trust agreement says ‘equal shares’  –  That means equal shares!  People basically just get the overall concept of getting money from a trust loan even if it doesn’t sell. It makes more sense all around to get a trust loan; and everyone gets more money.

Regarding the ever-present issue concerning families deciding to either sell inherited property; Or opting to keep property inherited from their parents – 

More heirs and beneficiaries end up not wanting to sell their inherited property. And  if they did want to sell, a lot of people can be easily convinced, with more cash from a trust loan and trust lender than an outside buyer would come up with, ‘equalizing’ things for them…

You have to look at it this way: there are always  one or two, minimum, who  insist on selling their shares in an inherited property. And there is our initial client contact, with those who want to sell.  And that is where these family estate or trust conflicts begin.  If they sell their property, capital gains tax always hits them. That’s where a trust loan comes in, to avoid that.

A trust lender like Commercial Loan Corp, that doesn’t charge any fees up-front, that’s another great benefit.  Plus, they don’t charge interest on their trust loan in advance. Not only that, there is never a “due-on-sale” clause… that requires the mortgage to be repaid in full when sold; or that all or some of the interest owed must be paid up-front to secure the mortgage. No “alienation clause”… in the event of a property transfer, stating the borrower has to pay back the mortgage in full before the borrower can transfer the property to anyone. 

Going with a firm like that – all costs are offset, unless you plan to keep a property for 2, 3 years or less. Then it doesn’t make sense. But generally you’re looking at keeping that property for seven or more years, as a rule...”

To learn more about your options when inheriting a home from parents – transferring a low property tax base to your new primary residence – contact Commercial Loan Corp, at (877) 756-4454 to speak with a Trust Loan or Property Tax Savings specialist. Chances are the end result will be a much lower property tax bill.

For more information on California Property Tax News, visit the PropertyTaxNews.org website for all of the latest information and updates.