If Proposition 19 passes this November, limitations will be placed on an heir’s ability to pay lower taxes after inheriting property.
A secondary outcome will be more rules on how homeowners are able to carry their property tax base over after selling a home and afterwards purchasing another property.
Current Reassessment Practices
Being aware of the existing law can help California consumers understand the upcoming changes. The current law is set up so that property tax in California is assessed using both the amount a property was sold for and the value of any upgrades that have been made on the property.
Only when ownership on the property in question changes can the assessed property tax amount increase by more than two percent in a year. However, a change in ownership often results in a property tax assessment of one percent of the market value of the property. Then, there is a two percent year’s cap on increases afterward. There are some exceptions in place regarding the procedures for reassessments.
In particular, there is an exclusion when ownership of a property is transferred from a parent to a child or between other family relations. The existing law makes it a fairly simple matter to avoid a property tax reassessment in certain key circumstances.
One example is the principal residence exclusion. This exclusion makes it so that a parent can change the ownership of their own primary residence to their child regardless of the value of the property. However, the child to whom the property ownership is being transferred must then use the property in question as a principal residence.
When it comes to exclusion for non-principal residences, there is a dollar amount cap. The existing law stipulates $1 million in an exclusion for the value of non-principal residences between a parent and a child. Property transferred and valued at $1 million or under can thereby be excluded from reassessment.
Reassessment Depending on Market Value Increases
Depending on how much a principal residence has appreciated, it’s possible that there may be a reduced reassessment of the property tax. If the property’s value has not gone up over $1 million since the value was assessed for the parents, the child can continue using the same property tax assessment.
However, there will be a reassessment if the property has gone up in value by more than $1 million. In this case, the child will need to pay property tax based on a reassessed value determined by the current value of the property minus $1 million.
Additional Ramifications of Prop 19
There are some additional effects Proposition 19 can have on property tax values and estate planning in California. Proposition 19 will have some effect on how a homeowner can transfer a tax assessment to another property after selling a previous property.
Proposition 19 would make it possible for homeowners who qualify to transfer their tax assessment basis to any property that’s within the same state. This could be done if a more valuable home is purchased if an upward adjustment is carried out. Another change Proposition 19 would bring about is that it would allow disabled consumers over 55 to do a transfer of their tax basis three times rather than once, as the previous law allowed.
When Prop 19 Will Take Effect
It remains to be seen whether Proposition 19 will be passed. If it is passed, it’s important to know that it will go into effect on February 16, 2021, when it comes to the regulations regarding parent-child transfers. When it comes to the regulations regarding the transfer of tax basis, these rules will not go into effect until April 21st, 2021. It has been stated that any increases in tax revenue resulting from the changes will go to fund efforts to fight wildfires.
However, it’s always essential to prepare for the future by planning out your estate and thoroughly understanding laws that affect estate planning. According to Justin Isaac, an estate planning attorney in El Cajon, “If you own property or have minor children, a Comprehensive Estate Plan that includes a Living Trust is particularly important, but it’s a good idea in any situation.”
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