Estate Planning & Prop 19 Property Taxes
According to Ballotpedia, 51.07% of Californians voted “yes” on Prop 19 in the recent 2020 elections. The newly approved proposition will bring with it many changes to property taxes and personal residency options. There are two changes to property tax laws that will impact estate planning. Prepare for amendments if you have an estate plan; if you don’t, consider these changes when crafting your new estate plan.
Before exploring the law changes, it’s best to know what the law was and how Prop 19 will change this law.
This prop dealt with property tax assessment basis. Property tax basis transfers were allowed between parent to children and grandparent to grandchildren. In a nutshell, property taxes remained the same when children or grandchildren got the properties. The current law also allowed you to use transferred property as you pleased, such as using it for a rental property or a vacation home.
For purposes of this article, we will discuss the parent child exclusion only (not the grandparent-grandchild).
This law goes into effect: February 16, 2021.
Prop 19 and Personal Residence
Current Law: When a parent transfers ownership of his or her principal residence to a child, the property value for tax assessment purposes is not reassessed. Meaning, there is no change to the property taxes paid.
New Law: There will be a cap of $1 million base value on the exclusion. Meaning, anything above the $1 million value will be reassessed.
Current Law: When a parent transfers ownership of his or her principal residence to a child, the child can use the property for whatever purpose he/she intends (vacation home, rental, residence, etc).
New Law: Requires child to use residence as principal residence. Other uses will incur a reassessment. Child has to move into the property as a resident- limited only to residential.
Prop 19 and Other Real Property
Current Law: Current law allows parents to transfer limit of $1,000,000 of factor base year value on non-residential properties to children and have the property tax exclusion apply.
New Law: Eliminates exclusion for non-residential real property. This means all investment property will incur a reassessment upon transfer.
Current Law: Current law requires you to file claim within 3 years or before transfer
New Law: New law will require you to file claim within 1 year of transfer
Feel free to contact our office with additional questions. This may be a good time to consider gifting property to children to take advantage of the assessed transfer exclusion.