PROP. 19 - 2021 & Beyond (Property Tax Assessments)

PROP 19 -  Avoiding Property Tax Reassment 

 Prior to the passage of Prop 19, the law in California excluded  transfers of real property from reassessment for property tax purposes under two exclusions:

1. Principal residence exclusion: A transfer of your principal residence to your child may be fully excluded from property tax reassessment, regardless of the market value of the property and whether the child subsequently uses the property as a principal residence or for some other purpose, such as a vacation or rental property. Under the exemption, children not only receive the benefit of the existing assessed value of the property but also can pass some or all of that benefit along to their own children.
2. $1 million lifetime non-principal residence exclusion: The first $1 million of assessed value (not fair market value) of any real property, including vacation, rental, and business property, which you transfer to your child may be excluded from property tax assessment.

Proposition 19 repeals the existing exemption for transfers between parents and children (and between grandparents and grandchildren whose parents are deceased) and replaces it with a much more limited exemption. Beginning with transfers occurring on and after February 16, 2021, the parent-child exemption is limited to transfers of a principal residence that the transferee will use as a principal residence, as well as to certain farm property. In addition, if a transfer qualifies for the exemption, a principal residence with an assessed value in excess of the taxable value of the residence as of the date immediately prior to the date of the transfer, plus $1 million, will trigger a partial property tax reassessment, even if the property will continue to be used as a principal residence by the transferee. Starting February 16, 2023, and every February 16 thereafter, the $1 million threshold will be adjusted annually at a rate equal to the change in the California House Price Index for the prior calendar year.

If you are thinking about transferring real property in California to your family for estate planning purposes, making the transfer on or before February 15, 2021  may enable you to preserve the property tax value under the existing exemption limits.

Lifetime and/or Estate Gifts - Owners may want to leave to property to children or grandchildren before February 15, 2021, via wills or trusts, if they want to avoid property tax reassessment.    

Proposition 19 will essentially end many owners' ability to transfer real estate (residential, industrial or commercial) to heirs free of property tax reassessment.