Important Property Tax Changes – Prop 19 Modifies Tax Assessments on Inherited Real Property

Do you plan to gift your family home or rental properties to your children when you pass away? Then you may want to consider transferring the property to your children before February 2021 to avoid property tax reassessment upon your death.

California recently passed Prop 19, which will eliminate the ability for children to receive most property from their parents without the property taxes being reassessed.

Under the current laws, a parent can transfer their primary residence and up to one million of assessed value of other property to their children without the property taxes being reassessed on those properties. These transfers can be done while the parents are alive or after they pass away. Prop 19 completely changes these rules.

Under the newly passed Prop 19, only a primary residence, not other real property, can be transferred to children without the property taxes being reassessed. Further, the exception only applies to the primary residence if the children will use the home as their primary residence and to the extent that the fair market value of the residence does not exceed the assessed value by more than one million. This means that any property other than the primary residence will be reassessed when transferred from parents to their children. And the primary residence will be reassessed unless the narrow exception applies.

***You must act now, before February 16, 2021 to mitigate or avoid property tax increases before Prop 19 takes effect.***

Prop 19 does not take effect until February 16, 2021. The good news is that there are planning opportunities available to transfer assets before February 16, but you must act fast!

If you own a property that has a high fair market value and currently low property tax assessed value, you will want to consider planning for that property before February 16, 2021. By doing your tax planning before then, you might be able to save your children substantial property tax increases in the future. If you wait until after February 16, 2021, it will be too late.

This is not something you want to do without proper planning, however, as there are significant gift tax, estate tax, and capital gains tax considerations anytime you transfer real property. We have specialized trusts that can lock in the property tax rate while also avoiding capital gains taxes down the road.

If you have a second home, rental real estate, or commercial property, you should seriously consider the transfer of those properties to trusts for your children now. You can transfer up to one million of property at its taxable value (the value shown on the property tax roll) to trusts for your children without reassessment.

Contact us as soon as possible at 949.718.0420 to schedule a time to discuss whether planning for Prop 19 makes sense for your family. Remember, we must have your planning completed by February 16, 2021, so call right away to get started.

Warmest regards,

Laura and Josh