Proposition 19 has passed. What are the effects of prop 19 on our clients? We see four practical effects, good and bad, of this law for California property owners:
- Prop 19 eliminates the parent-child and grandparent-grandchild exclusion from reassessment for properties other than a “family home.” Prior to Prop. 19’s passage, a parent could transfer the parent’s primary residence and up to $1,000,000 of assessed value other property (vacation home, commercial property, rental properties, investment properties and so on) to their children and such properties would retain the low adjusted base year value for property tax purposes. Meaning that the property taxes would stay substantially the same after the transfer to children. Now, unless both the parent and the child will use the property as his or her primary residence, the exclusion is terminated. Thus, children inheriting property from their parents (other than the primary residence), may see a substantial increase in property taxes on such inherited property.
- Prop. 19 reduces the parent-child exclusion on a primary residence or “family home” from unlimited value to one million dollars above the current assessed value. As such, even if a parent transfers his or her primary residence to their child who also uses it as a primary residence, there could still be an increased depending on the assessed value of the property.
- Prop. 19 requires the “family home” to qualify as both the primary residence of the transferor (i.e. parent) and the transferee (i.e. child).
- In most instances, a California homeowner over age 55 or with severe disabilities will have the ability to transfer their current property tax assessed value (aka base year value transfer) of their primary residence to another primary residence anywhere within California. This eliminated the distinction amongst counties on which would approve a base year value transfer. This change also allows individuals to purchase a more expensive property rather than just a less expensive property and keep the benefits of the base year value transfer. If a more expensive primary residence is purchased, there is now a formula to minimize the increase in base year value. Prop 19 also increased the number of times this exception can be used from one to three.
These changes will cover any transfers made after February 16, 2021. Whether the death of a parent before February 16, 2021, wherein the deeds are recorded after February 16, 2021, remains an open question as to whether Prop 19 would apply, or the prior more favorable law would apply. We will learn more as the Board of Equalization, which governs how property taxes are applied, issues guidelines and updated forms to match the Proposition that just passed. This will be unfolding in the coming months.