Proposition 19 Brings Significant Changes to Property Tax Rules for Inter-County and Inheritance Transfers
In November 2020, California voters passed Proposition 19, which modifies Article XIIIA (aka Proposition 13) of the California Constitution and significantly affects certain types of real property transfers.
Proposition 13 limits increases in assessed values to a maximum 2% per year, except when there is new construction and/or a transfer of ownership.
Over the years, California voters have passed several propositions which have excluded certain transfers of ownership from reassessment under Proposition 13. Affected propositions include:
Propositions 58 and 193: Excludes transfers between parent and child (58) or grandparent and grandchild (193) from reassessment.
Proposition 60 applies to intra-county transfers, while Proposition 90 applies to inter-county transfers under certain conditions. Formerly this applied to less than a dozen counties in the state, as it was left up the Board of Supervisors of each county to implement. Tulare County was not one of those Counties.
Proposition 19 Eliminates and Reduces Certain Inheritance Benefits
Children/grandchildren who inherit their parents’/grandparents’ principal residence but choose not to make the home their principal residence will now have the property re-assessed. Heirs must now file and qualify to receive the Homeowner’s Exemption or Disabled Veterans’ Exemption within one year of transfer of ownership. However, family farm transfers are allowable for this exclusion without the principal residence requirement.
Further, parents/grandparents can no longer transfer up to $1,000,000 of other property, such as residential rental property or commercial property, in addition to their principal residence. This reset of the assessed value to fair market value can significantly increase the assessed values as the value differences from base year 1975 properties to current value can be significant.
For example, a family property currently assessed for $50,000 with an annual property tax of approximately $600 could now be re-assessed to current market value at $750,000 resulting in an annual property tax of approximately $9,000. This significant property tax increase could affect the feasibility of ownership of inherited family properties.
This may also impact common estate planning trusts like qualified personal residence trusts which allows the transfer of a residence to a trust while that residence can still be occupied for a fixed number of years. The parent continues to live in the residence as their primary residence, and at the end of the fixed number of years, the residence transfers to their child. Under existing law, when the child becomes the owner, they would qualify for the parent-child exclusion but under Proposition 19 the child would have to make the residence their primary residence or the property would be reassessed. Those with a trust that holds a residence in the name of their child as a remainder beneficiary or those in the process of estate planning should contact a tax and estate planning professional to discuss potential impacts.
Proposition 19 Does Expand Certain Transfer Benefits
Californians that have the following conditions met will have more options. These options include:
A Base Year Value Transfer ( The assessed value of a property that is set when purchased or transferred) will no longer have to be a property of equal or lesser value. A homeowner can purchase a higher value property, (The prior benefit can be transferred and an upward adjustment is added for the difference).
Homeowners who are 55 or older may have their base year value transferred to another home.
Those who are severely disabled can have their base year value transferred to another home.
Victims of a Governor declared disaster, wishing to transfer their property tax benefits, can have their base year value transferred to another home.
An inter-county transfer can occur between any two counties. A qualifying transfer can be made up to 3 times, not just once and for Governor declared disaster victims, there is no limit on the number of times the benefit can be used.
Frequently Asked Questions:
Does Prop 19 apply to Mello-Roos Bonds and other direct levies?
Prop 19 language requires that a replacement primary residence of a qualified person is purchased or newly constructed within two years of the sale of the original primary residence. Is there an allowance for an extension of the two-year requirement?