Proposition 19 (Prop 19) passed in California by 51.1%. We want to make you aware of this proposition’s impact on your estate plan. We have a very limited time to make changes to your estate plan if you want to protect your properties from being reassessed, please call us at (805) 915-4793 if you want to discuss your options.

Changes to the Parent-Child Exclusion

Effective February 16, 2021, any property passing from a parent to a child will be subject to reassessment unless it is the primary residence. Prop 19 limits the availability of the parent-child exclusion for purposes of real estate tax assessments.

Under the old law, when a parent transferred ownership of his or her principal residence to a child, the property’s value for tax assessment purposes is not reassessed. Transferring a parent’s home to one or more children is permissible under current law without triggering reassessment. The child or children could use it as a vacation home or a rental property.

Under Prop 19 the child or children must use the residence as their own principal residence or it will be subject to reassessment. In addition, even if the child uses the residence as his or her own residence, there is a cap of $1,000,000 on the exclusion.

If your home has increased in value significantly from its taxable value, Prop 19 adds certain limitations that could result in an increased assessment when the property is transferred to your child(ren). If the increase in value is less than or equal to $1,000,000, no adjustment will be made. However, if the increase in value is more than $1,000,000, the increase above the first $1,000,000 will be added to the tax assessed value.

For example, assume a parent’s home has a taxable value of $1,000,000. Because the parent purchased the home many years ago, its value is now $2,500,000. The new reassessed value if the parent gifts the home to her child will be $1,500,000, the original $1,000,000 plus the $500,000 over the $1,000,000 not subject to adjustment.

All other properties will be subject to reassessment!

Changes to the Transfer of Taxable Value for Certain Property Owners

Effective April 1, 2021, homeowners will be able to transfer their taxable value to a new property in the state of California. Prop 19 allows a homeowner to transfer their taxable value to a new property 3 times. Homeowners can buy a replacement home that is worth more than their current home, provided, however, the increase in value is added to the transferred taxable value of the current home.

For example, assume a homeowner is over 55. Her house has a taxable value of $1,000,000. She sells it for $5,000,000. If she buys a new home anywhere in California for $5,000,000 or less, she can transfer her $1,000,000 taxable value to the new home. This will be its taxable value. However, if she wants to upgrade to a $10,000,000 home, her new home’s taxable value will be $6,000,000 – the taxable value of her old home transferred ($1,000,000) plus the upgrade value ($10,000,000 – $5,000,000).