Proposition 19 and the Reassessment Exclusion for Transfers between Parent and Child

Generally, real property is reassessed when transferred. However, California presently excludes certain transfers from reassessment. The transfer of a primary residence between parents and children is completely excluded from reassessment of property taxes, regardless of the value of the said residence and whether the child chooses to reside in said property.

In addition, transfer of all other real properties (non-primary residence) between parents and children, such as vacation homes, commercial buildings, or residential rental real properties are excluded from reassessment for up to $1 million of the current assessed value (which is often lower than the market value).

If Proposition 19 passes, it will vastly change our laws surrounding parent-child transfers and have a significant negative financial impact. Specifically, if Proposition 19 passes, it will (1) eliminate the lifetime $1 million non-primary residence exclusion; (2) eliminate the primary residence exclusion unless the child actually resides in the primary residence received from a parent; and (3) even if the child utilizes the inherited property as his or her primary residence, the child’s new assessed value will be based on whether the property’s value at the time of transfer is greater than the parent’s assessed value by more than $1 million. If the value of the property at the time of the transfer exceeds the parent’s assessed value by more than $1 million, then the child’s assessed value is the current value of the property less $1 million. If Proposition 19 passes, the changes pertaining to the parent-child exclusions will be effective on February 16, 2021.

If Proposition 19 passes, individuals owning real properties in California should consult an estate planning attorney to discuss their options, such as transferring real property to their children now or holding real properties in a legal entity.

Here at Chauvel & Glatt, we will follow the election closely and keep you updated on any information we find regarding Proposition 19. For now, we encourage everyone to do their own research and vote. To learn more about our estate planning services, please contact us here.

 

The material in this article, provided by Chauvel & Glatt, is designed to provide informative and current information as of the date of the post. It should not be considered, nor is it intended to constitute, legal advice or promise similar outcomes.  For information on your particular circumstances, please contact Chauvel & Glatt at 650-573-9500. (photo credit: 123rf.com)

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