- posted: Dec. 21, 2020
The protections of Proposition 13 reducing California Property taxes were challenged in Proposition 15 and 19 on the November 2020 ballot. Traditionally Proposition 13 was considered the “third rail” of California Politics. It was impossible to attack. Not in 2020, however, although Proposition 15 was defeated, Proposition 19 passed. This seriously limited the parent child exemption to real estate transfers under Proposition 13.
Property tax is determined by taking the assessed valuation of the property and multiply it by the tax rate. Proposition 13 freezes the property tax assessed value to the value of the time of purchase or transfer and limits the tax rate to 1%. The rate is somewhat higher than that because local government entities can attach assessments to the rate which increases the rate.
Before Proposition 19, a transfer between a parent and child or a grandchild if the child’s parent was deceased would not be qualify as a transfer under Proposition 13 rules, so the children or grandchildren would pay the same property taxes as their parents.
However as of February 15, 2021, this transfer exemption will be severely limited under Proposition 19.
After February 15 2021, the only parent child transfers exempted from reappraisal are when children use the inherited property as their primary residence up to the maximum amount of $1,000,000.00. Since many senior property owners in California hold on to their property for a long time and the rapid increase in the value of California real estate this should cause a large increase in the amount of taxes that their children will have to pay when they inherit real property. Besides increasing immediate revenue for the state it will force many of them to sell the inherited property.
Another part of the proposition is for senior citizens over 55 years of age, disabled, and disaster relief victims. It allows those persons to keep their property tax base if they move to a new residence anywhere in the State of California. The transfers are limited to three moves. Also if they move to a more expensive residence the reduced tax amount will apply to the value of the old residence and the assessed tax value will be increased only for the amount over that old value.
Is it better to give your property to your children now and have them save on property Taxes or let them inherit it and get a "stepped up basis" when they sell the property? If you have any questions on how proposition 19 would work in your estate plan please call us (310) 907-5715.