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In the November 3, 2020, general election, California voters narrowly approved Proposition 19, a statewide ballot measure that expands the current rules applicable to homeowners age 55 and older and significantly changes the rules that apply to transfers of California real property to children or grandchildren.
Benefits for Homeowners Age 55 and Older and Certain Other Homeowners
Under current California law (Proposition 13 passed in 1978), property taxes are based on the property’s purchase price (property tax base) and are subject to a maximum 2% annual increase. This provides a significant benefit to homeowners who remain in their homes for longer periods of time as market value outpaces the tax increase limitation.
Under the Proposition 13 regime, homeowners age 55 and older and certain disabled homeowners are allowed one opportunity to transfer (via lifetime transfer or intestacy) their existing property tax base if such homeowners move to a home of equal or lesser value within the same county, or from Los Angeles County to certain other counties.
Effective April 1, 2021, Proposition 19 makes the following changes for homeowners age 55 and older, individuals with severe disabilities, and victims of natural disasters:
Disadvantages for Property Transfers between Family Members
Under current California law, a parent can transfer a primary residence of any value to children without a property tax reassessment regardless of the child’s use of the property. Likewise, in certain very limited circumstances, a grandparent may make a similar transfer to a grandchild. For property other than a principal residence, a parent can transfer up to $1 million of assessed value without a property tax reassessment.
Effective February 16, 2021, Proposition 19 makes the following changes for parent/child or grandparent/grandchild transfers:
Because the key provisions of Proposition 19 become effective February 16, 2021, with respect to intra-familial transfers, and April 1, 2021, with respect to homeowners age 55 and older, taxpayers considering property transfers that may be subject to these new rules may wish to take action immediately. Keep in mind that special considerations with respect to property transfers between family members may apply for estate and gift tax planning purposes.
Please contact one of the following HCVT team members below to learn more about the potential impact of Proposition 19 and planning opportunities: