Property Ownership that is Excluded from Reassessment

Inheriting Property Taxes in California

Inheriting Property Taxes in California

California residents voted Proposition 19 (Assembly Constitutional Amendment No. 11), into law on Nov 3, 2020 – and became active on Feb 16, 2021; changing the parent-to-child exclusion and adding other tax relief exemptions involved with inheriting property taxes in California.

Reassessment Exclusions and Property Tax Exemptions

Regardless of revisions of any kind, an exclusion from property  reassessment at current property tax rates still allows parents to transfer their primary residence or in certain cases a “family farm” – to their children, as heirs avoiding full reassessment; as long as they move into their home as a primary residence once the property transfer is complete, or if it’s a farm, as long as they continue to use that property legitimately as a functional farm.

If a home is being transferred, heirs have to claim a “homeowner’s exemption” to prove that that the home is being used as a primary or principal residence. As most people know by now, this exclusion is now under limitations as to the assessed value of the home, plus $1,000,000. Even if all the “i’s” are dotted and the “t’s” are crossed the home will be reassessed at current market value if it exceeds the existing assessed value plus $1,000,000. Moreover, the “Claim for Reassessment Exclusion” and “Claim for Homeowners’ Property Tax Exemption” must be completed and filed.

Pro Rata & Non Pro Rata Distribution

Even though the parent-to-child exclusion (i.e., parent-child exemption) applies to non pro rata trust distributions from a parent to their children (heirs) – this never applies to transfers between siblings… So many think it’s better to give the trustee managing the trust the power to distribute equal cash assets to the heirs as pro rata distribution, rather than allow a trustee to give the children different values… 

Of course, when a trust loan is applied to the process in conjunction with Proposition 19 (formerly Prop 58, passed in 1986), it is as pro rata distribution, so all beneficiaries selling off their inherited property shares will receive equal revenues from the sale, typically from one heir, or multiple beneficiaries, looking to keep their inherited parental property, while keeping their parent’s low property tax base, as stipulated and protected by CA Proposition 13. 

Avoiding Property Tax Reassessment & Property Tax Hikes

As long as a beneficiary moves into an inherited home as a primary residence within 12-months of the passing of the parent, the beneficiary can transfer parents property taxes and keep parents property taxes when inheriting parental property and subsequently inheriting property taxes in California. A  property tax transfer (inheriting property taxes in California) still goes hand in hand in California with a parent-child transfer, namely a parent-to-child exclusion, to avoid property tax reassessment or fair market property tax rates. 

Which is why it is so important to keep up with correct information on any current property tax hikes…  Plus, staying current with any new releases from the Legislature regarding property tax breaks, or new rules for property tax transfers.  Moreover,  it really is critical to keep up to date on all pertinent, accurate  and timely property tax news and resources for transferring property taxes in California

Working With a CA Trust Lender or Property Tax Consultant

A pro rata distribution of the assets of an estate means that each heir receives an equal portion of each asset in the estate. A non pro rata distribution means that each heir receives an equal proportion of the entire estate but not necessarily of each asset.

Should the children of the grantor parents decide to trade properties after the distribution of the trust – any real estate will certainly be reassessed.  That’s why it’s so important to have a trust lender or a property tax consultant at your side before you plunge into all of this, if you are a middle class homeowner and can’t afford an expensive real estate attorney. That’s perfectly understandable.  Join the crowd…

Is There Support in California to Reverse Potential Property Tax Hikes?

Are Trusts Only for the Wealthy

Are Trusts Only for the Wealthy

California Assembly Constitutional Amendment 9  

As most Californians know by now, CA Assemblyman Kevin Kiley introduced property tax measure ACA 9 to try to return long term property tax relief benefits to their original state.

Specifically, Assembly Constitutional Amendment 9 focuses on strengthening and bolstering parental property tax transfer in California, meaning the parent-child transfer and popular parent-to-child exclusion – which still gives Californians the ability to transfer parents property taxes and  keep parents property taxes when gifting or inheriting parents property.  As well as buying out co-beneficiaries’ property through Proposition 19, formerly Prop 58, in conjunction with a loan to an irrevocable trust; establishing a low property tax base upon inheriting a home… and always bearing in mind California’s long running right to avoid property tax reassessment. 

All California property tax relief rights were, and still are, hand-in-hand with the overall ability to transfer property, parental property tax transfer mainly, during inheritance from parent to child, and a tax break that is still protected by property tax measure Proposition 19 – mainly affecting middle class beneficiaries inheriting property, and mid-income homeowners residing in all 58 counties in California, and yet not fully understood by many residents.

California Proposition 19

Proposition 19 passed on Nov 3rd by a slight majority, following a very effective $40 million promotional campaign mostly paid for by the California Association of Realtors (the C.A.R.);  highlighting property tax breaks that favored residents over the age of 55, as well as sentimental favorites, such as school children and firefighters.  The campaign rivaled anything Madison Avenue could have come  up with!

Soon after Feb 2021, Californians and local media began to discuss Proposition 19 in terms that characterized Proposition 19 parental property tax transfer rights — enabling families to transfer property taxes to and from anywhere in the state — as basically replacing   Proposition 58 property tax breaks, a long-standing property tax measure that was voted into law in 1986 with a 75% voter majority; after a unanimous vote in the Legislature placed it on the ballot. Proposition 58 amended the state constitution to permit parents to transfer a home of any value and up to a $1 million of other property — such as a vacation cabin, rental property or small business – avoiding property reassessment.

Protecting Property Tax Relief & the CA American Dream

“The opportunity to own a home is central to the California Dream, but our state’s affordability crisis has put this beyond the reach of too many working families,” Kiley said. “Now, thanks to a Special Interest deal, Californians face a large and unplanned-for tax increase when they pass down property to their children. ACA 9 restores a vital protection that was in place for 35 years.”

As certain residents and activists try to change certain confusing revisions to property tax relief in California, they also acknowledge positive property tax breaks, such as benefits for property owners over 55 years old, who are eligible for tax assessment transfers; people with severe disabilities, victims of wildfires and other natural disasters; as well as sentimental favorites such as fire-fighters and school children. And who is going to deny eligible homeowners like that.

Positive property tax relief measures allow eligible homeowners to transfer their tax assessments anywhere within the state and allow tax assessments to be transferred to a more expensive home with an upward adjustment. The number of times that a tax assessment can be transferred increased from one to three for persons over 55 years old or with severe disabilities (disaster and contamination victims would continue to be allowed one transfer).

California Assembly Constitutional Amendment 9 focuses on parents and grandparents transferring primary residential properties to their children or grandchildren while avoiding property tax reassessment. ACA 9 also addresses issues revolving around parents and grandparents transferring vacation homes and business properties to their children and  grandchildren; with the first $1 million exempt from re-assessment when transferred.

Limitations on One Hand & Huge Benefits on the Other

Now, it’s true that there are some limitations in certain circumstances. People who want to take advantage of the parent-to-child exclusion and grandparent-grandchild exemption must move into their inherited property as a primary residence, which many residents want to do anyway, and they do have an entire year to move in. 

On the other hand, senior rights being a central issue  for middle class and upper middle class families in California, residents over the age of 55 have a whole suite of new property tax benefits, along with folks with disabilities, and victims of natural disasters such as  earthquakes and floods, as well as forest fires (which are extremely timely these days in California, especially for middle class residents).

When inherited property is used as a primary residence but is sold for $1 million more than the property’s taxable value, an upward adjustment in assessed value would occur. The ballot measure also applied these rules to certain farms. Beginning Feb. 16, 2023, the first $1 million is adjusted each year at a rate equal to the change in the California House Price Index.

Jon Coupal, president of HJTA, weighed in on the new activities designed to reverse any questionable changes to California property tax relief. Mr. Coupal stated: “The Howard Jarvis Taxpayers Association is proud to support ACA 9 to reinstate Propositions 58 and 193, reversing any stealth tax increases on California families!”

No one could have put it any clearer.