Proposition 19 Brings Significant Changes to Property Tax Rules for Inter-County and Inheritance Transfers
In November 2020, California voters passed Proposition 19, which modifies Article XIIIA (aka Proposition 13) of the California Constitution and significantly affects certain types of real property transfers.
Proposition 13 limits annual increases in assessed values to a maximum 2% except when there is new construction and/or a transfer of ownership. Over the years, California voters passed several propositions excluding certain transfers of ownership from reassessment under Proposition 13:
- Propositions 58 and 193: Excludes transfers between parent and child (58) or grandparent and grandchild (193) from reassessment.
- Propositions 60 and 90: Homeowners 55+ years of age can sell their primary residence and transfer the base year value of that property to a replacement residence if certain conditions are met. Proposition 60 applies to intra-county transfers, while Proposition 90 applies to inter-county transfers under certain conditions.
- Proposition 110: Severely disabled persons can transfer the base year value of their primary residence to a replacement residence if certain conditions are met.
Proposition 19 Expands Certain Transfer Benefits
Homeowners who are 55 or older, or who are severely disabled, or who are victims of a Governor declared disaster, wishing to transfer their property tax benefits, to another home in California will have more options:
- A homeowner can purchase a higher value property. The transfer no longer will have to be a property of equal or lesser value. The prior benefit can be transferred and an upward adjustment is added for the difference.
- An inter-county transfer can occur between any two counties, not just counties with local ordinances.
- A qualifying transfer can be made up to 3 times, not just once and for Governor declared disaster victims, there is no limit on the number of times the benefit can be used.
Proposition 19 Eliminates and Reduces Certain Inheritance Benefits
Children/grandchildren who inherit their parents’/grandparents’ principal residence but choose not to make the home their principal residence will now have the property re-assessed. Heirs must now file and qualify to receive the Homeowner’s Exemption or Disabled Veterans’ Exemption within one year of transfer of ownership. However, family farm transfers are allowable for this exclusion without the principal residence requirement. Further, parents/grandparents can no longer transfer up to $1,000,000 of other property, such as residential rental property or commercial property, in addition to their principal residence. This reset of the assessed value to fair market value can significantly increase the assessed values as the value differences from base year 1975 properties to current value can be significant.
For example, a family property currently assessed for $50,000 with an annual property tax of approximately $600 could now be re-assessed to current market value at $750,000 resulting in an annual property tax of approximately $9,000. This significant property tax increase could affect the feasibility of ownership of inherited family properties.
This may also impact common estate planning trusts like qualified personal residence trusts which allows the transfer of a residence to a trust while that residence can still be occupied for a fixed number of years. The parent continues to live in the residence as their primary residence, and at the end of the fixed number of years, the residence transfers to their child. Under existing law, when the child becomes the owner, they would qualify for the parent-child exclusion but under Proposition 19 the child would have to make the residence their primary residence or the property would be reassessed. Those with a trust that holds a residence in the name of their child as a remainder beneficiary or those in the process of estate planning should contact a tax and estate planning professional to discuss potential impacts.
Quick Comparison Chart of Current versus New Provisions
Allows persons over 55 or with severe disabilities to transfer their tax assessments to a property of equal or lesser value either a) within a county (Proposition 60) or b) to another county if the county has authorized such a transfer by ordinance (Proposition 90). This was limited to 10 counties:
|1. Alameda ||5. San Bernardino ||8. Santa Clara|
|2. Los Angeles ||6. San Diego||9. Tuolumne|
|3. Orange||7. San Mateo||10. Ventura|
Allows persons over 55, persons with severe disabilities, or victims of Governor-declared disasters can transfer their tax assessment anywhere within the state and allows the assessment to be transferred to a more expensive home with an upward adjustment.
Proposition 60/90 allows for only one transfer by persons over 55 years old or with severe disabilities.
Increases the number of times that persons 55 years old or with severe disabilities can transfer their tax assessments to three and no limit for disaster victims.
No value limit on the transfer of the principal residence to child/grandchild
Benefit is now limited to an additional $1,000,000 with an upward adjustment for amounts over the limit.
Example: Let’s say the market value of the principal residence is $500,000 and the taxable value on the current tax bill is $300,000. Since the market value of $500,000 is less than $1,300,000 ($300,000 taxable value + $1,000,000), the taxable value remains the same at $300,000.
Example: Let's say the market value of your home is $1,800,000 and the taxable value on your tax bill is $500,000.
Your new taxable value after the transfer would be:
$1,800,000 market value - ($500,000 Taxable Value + $1,000,000) = $300,000 over
$300,000 overage + taxable value of $500,000 = new taxable value is $800,000.
Can transfer up to $1,000,000 of other property in addition to the principal residence.
Other property is no longer eligible for this benefit, only the principal residence or family farm can qualify.
No principal residence requirement for child/grandchild.
Child/grandchild must occupy the property as their principal place of residence and qualify for either a homeowner's exemption or disabled veterans' exemption within one year of the transfer.
Proposition 19 applies to Parent-Child/Grandparent-Grandchild transfers completed after February 15, 2021* and base value transfers involving people over 55 or severely disabled or disaster victims completed after March 31, 2021.
Those who are concerned with re-assessment under Proposition 19 can complete a parent/grandparent-child/grandchild transfer no later than February 15, 2021* and apply for exclusion from re-assessment under Proposition 58 and 193 requirements. Qualifying transactions completed prior to February 16, 2021, will be subject to current more permissive rules.
Conversely, qualified individuals wishing to transfer their property tax benefits to a more expensive home and/or to a county not previously listed under Proposition 90 may elect to delay closing the transfer until April 1, 2021 or later. Qualifying transactions completed April 1, 2021 or later will be subject to Proposition 19’s more permissive rules.
It is important to note that transfers and sales of property may have income tax consequences and it is recommended that you consult an income tax professional in advance.
The language of Proposition 19 will need some clarification particularly with regards to the definitions of family farms and severely disabled. We will update this page as new information becomes available.
Prop 19 Frequently Asked Questions
The Frequently Asked Questions and Answers, accessible through the links below, have been taken from the CA BOE Prop 19 Legal Analysis 1.8.2021 and abbreviated.
Applications must be filed in the county where the transaction is completed. For Sacramento County property owners, forms can be directly accessed below:
Sacramento County property owners with questions are encouraged to contact the Assessor’s Property Transfer Section at Prop19@saccounty.net or (916) 875-0750.