Property Tax Changes - Understanding Proposition 19
/Proposition 19 - the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disaster Act (“Act”) was narrowly passed by the voters. While the Act helps homeowners over 55 years of age, disabled or victims of natural disasters, homeowners looking to transfer assessed values in properties to their children need to carefully consider their options before the effective date of the Act.
Here are the highlights of the Act:
1. Transfer of Assessed value. Effective April 1, 2021, homeowners over 55 year of age, disabled, or victims of a natural disaster may transfer their existing assessed value to a replacement primary residence (“Residence”) a maximum of 3 times, including the purchase of a more expensive Residence anywhere in California. Remember, your assessed value is the value when the property was purchased. The assessed value can go up, but not by more than 2% a year. If the homeowner does buy a more expensive Residence, there will be pro rata increase based on the difference in fair market value between the old and new Residence. To qualify as your Residence, the Residence must be eligible for either the homeowner or the disabled veteran exemption.
2. Parent-Child Transfer on Residence. The Parent-Child (but also available for Child-Parent) transfer on a Residence remains; however now the child or children using the transfer MUST use the Residence as their Residence. In addition, there is now a cap of $1 Million of assessed value on the exclusion. If you have more than 1 child, you need to have a Right of First Refusal in your Trust so the child of your choice can take 100% of the Residence’s assessed value. Also, if the parent dies before February 16, 2021, you want to get the Parent Child exemption on file immediately because we do not know if the Board of Equalization is going to accept Parent Child exemptions under the old rules for parents who died before February 16, 2021.
3. Parent Child Transfer on Non Residence property. Effective February 16, 2021, the Parent Child transfer will no longer be available on non- residence property. If you are considering transferring property prior to February 16, 2021, I you should seek legal advice. There are good reasons to do these transfers such as there is currently no limit to the assessed value of the residence transferred and you can transfer up to $1 Million dollars of assessed value in other properties. A transfer of a vacation rental or commercial property may make sense. However, there may be good reasons not to do the transfer such as the tax consequences of your child taking your carry over basis, asset protection issues and you losing right to income from your properties or title to your own property.
The ramifications of the Act are tremendous and there is very little time before February 16, 2021 to determine what should be done. Because of the complexities of Proposition 19, we are doing consultations on Proposition 19 for a flat fee of $1,500.00. The consultation includes a review of your existing estate plan, analysis of the ramifications of Proposition 19 issues and options available to you to mitigate effects of Proposition 19. If you determine that further action is needed, there will be an additional charge. This article provides only general legal information and not specific legal advice. Information contained is not a substitute for a personal consultation with an attorney. LAW OFFICE OF JOAN GRIMES, PHONE (925) 939-1680, 1600 S. Main Street, Suite 100, Walnut Creek, CA 94596 © 2020 Joan Grimes