After Passing Proposition 19, Consider Transferring Real Estate To California To Avoid A Real Estate Tax Reassessment | Stoel Rives srl
Californians voted to implement Proposition 19, a voting measure that dramatically reduces the parent-child property tax exemption allowing transfers of real estate between parents and children without reassessing the assessed value of the property at its current fair market value. Proposition 19 would impact the California real estate you plan to transfer to your children, whether they plan to use it as a vacation home or as investment property.. It may be important to transfer any California real estate you plan to pass on to your children or grandchildren by February 15, 2021, if you want to avoid a property tax reassessment. As we noted in recent alerts (see here and here), there are also compelling reasons to consider accelerating your estate plan until the 2020 Lifetime Gifts.
Proposition 19 will essentially end your ability to transfer real estate to your children without reassessing property taxes. If you have a heritage property that you intend to pass on to the next generation (whether it’s your home or whether it’s rental, commercial or industrial property), you need to act quickly. .
Currently, California law excludes transfers of real estate from reassessment for property tax purposes under two exclusions:
- Exclusion of principal residence: A transfer from your primary residence to your child may be excluded from property tax reassessment entirely, regardless of the market value of the property and whether the child subsequently uses the property as their primary residence or to others. purposes, such as a vacation or a rental. goods. Under the exemption, children not only receive the benefit of the existing assessed value of the property, but can also pass some or all of this benefit on to their own children.
- Lifetime exclusion of $ 1 million for non-primary residence: The first million dollars of assessed value (not fair market value) of any real estate, including vacation, rental, and business property, that you transfer to your child may be excluded from the valuation of the property tax.
Proposal 19 repeals the existing exemption for transfers between parents and children (and between grandparents and grandchildren whose parents are deceased) and replaces it with a much more limited exemption. As of February 16, 2021 and after this date, the parent-child exemption is limited to transfers of a principal residence that the transferee will use as a principal residence, as well as to certain agricultural property. In addition, if a transfer qualifies for the exemption, a principal residence whose assessed value is greater than the assessed value of the residence on the date immediately preceding the date of the transfer, plus one million dollars, will trigger a tax. partial land revaluation, even if the property will continue to be used as the principal residence by the transferee. Effective February 16, 2023 and every February 16 thereafter, the $ 1 million threshold will be adjusted annually at a rate equal to the change in the California home price index for the previous calendar year.
If you plan to transfer California real estate to your family for estate planning purposes, making the transfer by February 15 may allow you to preserve the property tax value below existing exemption limits.