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Parent-Child Exclusions from Property Tax Reassessment Fundamentally Changed by Proposition 19 

by Constance Liu

Published: December, 2020

Submission: January, 2021

 



In November, California voters narrowly passed Proposition 19, which makes significant changes to existing real property tax reassessment rules.


  • Effective after Feb. 15, 2021, Proposition 19 significantly restricts property owners' ability to preserve the current assessed value of California real property transferred between parents and children.
  • Effective Apr. 1, 2021, eligible homeowners age 55 or older (or who are disabled or displaced by natural disasters) will be able to transfer their current property tax base to a replacement home of any value located anywhere in the state.

This Alert focuses on the changes to the parent-child exclusion.*


Current Parent-Child Exclusion Rules


Current California law provides for two exclusions from property tax reassessment for transfers of California real property between parents and children:


  • The transfer of a principal residence (of any value) between parent and child is excluded from property tax reassessment.
  • The transfer of $1 million of other (non-principal residence) property between parent and child is also excluded from property tax reassessment. The $1 million limit is based on the assessed value of the property, not the current fair market value.

New Rules after Passage of Proposition 19


Prop 19 fundamentally changes these rules for transfers made after Feb. 15, 2021:


  • A parent may still transfer a principal residence to a child, but in order to be excluded from reassessment, the child must use the residence as the child's own principal residence following the transfer. In addition, if the fair market value of the residence exceeds the assessed value by more than $1 million, then the property will be partially reassessed based on the excess amount (but not to full fair market value).
  • The $1 million exclusion will be eliminated.

Considering a Transfer before Feb. 15, 2021


Parents who fall into the following situations may consider acting before Feb. 15, 2021:


  • Parents who own a family vacation home that will remain in the family for many generations.
  • Parents with California real property that have low assessed values for California property tax purposes and believe the property will not be sold following the parent's death.
  • Parents who currently hold their residence in a qualified personal residence trust (QPRT).

Please contact us if you wish to discuss how these changes affect your planning.


*There is a separate property tax exclusion for transfers between grandparents and grandchildren, with the added requirement that the grandchild's parents must be deceased in order for the exclusion to apply. The changes to the parent-child exclusion discussed above similarly affect the grandparent-grandchild exclusion.


 



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