On November 3, 2020, California Proposition 19 was voted on by the residents of California and approved by a narrow margin. There are good parts and bad parts for the California property owner.
Currently, eligible homeowners may transfer their tax assessments to a different home of “the same or lesser market value” which allows them to move without paying higher property taxes. This included individuals who are over 55 years old, people with severe disabilities, and victims of natural disasters and hazardous waste contamination.
California Proposition 19 now allows those over 55 years old or people with severe disabilities to transfer their tax assessments anywhere within the state and allows them to transfer their property tax base to a more expensive home. The number of times the tax assessment can be transferred is also increased from one to three (however, disaster and contamination victims would continue to be allowed only one such transfer).
This section of Prop 19 will go into effect on April 1, 2021.
Currently, parents (and in some cases grandparents) may transfer their primary residence to their children (or grandchildren) without triggering reassessment of the property tax base to the current fair market value. This negated significant increases in annual property taxes owed, which was a huge benefit to the children or grandchildren who inherited the residence. An additional $1,000,000 in reassessment exemption could be applied to other properties, such as vacation homes, business properties, investment properties, etc.
Prop 19 eliminates the reassessment exemption in cases where the child or grandchild does not use the inherited property as their principal residence. Additionally, even if the inherited property is used as the recipient’s principal residence but is sold later for $1,000,000 more than the property’s tax base, an upward adjustment in assessed value would occur [adjusted for inflation beginning February 16, 2023 based on the California House Price Index].
These new rules can pose problems if the property is transferred to multiple children or grandchildren, as opposed to one individual.
This section of Prop 19 goes into effect on February 16, 2021.
This new law does away with the additional $1 million in reassessment exemption for other non-residence properties transferred between parent-child or grandparent-grandchild. This will significantly impact those who own multiple properties in California and the children or grandchildren who stand to inherit the properties upon the parents/grandparents death.
If you have any questions about transferring your property now, or at your death, and how this new law affects you, please give us a call.