Recently, Proposition 19 (Prop 19) was passed in California. This new constitutional amendment contains two relevant changes in California property tax assessments. And therefore, it will have an impact on your estate planning.
More importantly, if you feel threatened by this new law, you should seek legal advice. In such a case, work with the law offices of R. Grace Rodriguez. We will help you to devise a strategy that works.
However, we have come up with this article to have an explicit discussion on the two changes that Prop 19 has in California. We will also prepare you ahead so that you won’t be affected by the changes.
Change #1: Changes to the Parent-Child Exclusion
In California, parents transferring homes to their children is permissible without reassessment. This means the children could use it as a rental property or vacation home. Under current law, when a parent transfers the ownership of their principal residence to their children, the property’s value will not be reassessed for tax assessment purposes no matter how the children use it. However, Prop 19 has changed this by requiring that such children use the residence as a principal residence, or it will be reassessed.
The major tax advantage of Proposition 19 in the California Real Estate is that it allows the transfer of real estate property between parents and children without a tax reassessment. This thereby allows parents to transfer a principal residence to their children so that they can keep the low taxable value.
Therefore, if you intend to keep the property tax low for the next generation, parents with rental properties are advised to transfer their rental properties to their children before February 16, 2021. This is the date when Proposition 19 takes effect.
Parents should know that if they wish to use the rental property after transferring ownership to their children, they would have to pay rent to the current owners. Since the rental property has been transferred, it now belongs to the new owners.
Change #2: Changes to the Transfer of Taxable Value for Certain Property Owners
This change is beneficial to homeowners. Prop 19 expands the class of people who can transfer their taxable value from their current home to a new property.
Under current law, only disabled homeowners and those above 55 years are eligible for this benefit. And they could do so if their new home is the same as their old home and the value of their new home is equal to or less than the value of their old home.
However, in the new law, the homeowners that are eligible to take this offer include victims of natural disasters or wildlife, irrespective of their disability status or age. Prop 19 also removes the restriction that the replacement home should be worth more than the old home and will take effect on April 1, 2021.
Since Proposition 19 is coming to its effective date, the options for transfer tax planning are greatly limited. If you intend to go through this process, you should visit the law offices of R. Grace Rodriguez to be on the safe side. We can help you implement your plan based on the estate planning goals and make the best use of the available property tax.