What You Need To Know Now That California’s Proposition 19 Passed

The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disaster Act, more commonly known as “Proposition 19,” recently passed in California. As a potential or current California resident or property owner, do you understand the potentially significant tax ramifications of Proposition 19?

Proposition 19 changed two important aspects of California property tax. First, Proposition 19 now allows adults over the age of 55, disabled persons, and victims of wildfires and other natural disasters to be able to transfer the assessed property tax value of their primary residence in California to a new or replacement residence in California. This can provide substantial tax benefits to a large population of Californians, allowing them to move into a new home anywhere in the state that may otherwise have prohibitively high property taxes.

The second aspect of California property tax law that Proposition 19 will change relates to the parent-child exclusion for property tax assessments. Under current law, before Proposition 19 goes into effect, there is no reassessment triggered for property taxes when a parent transfers property to a child. In other words, a child who takes ownership of his or her parent’s home does not have to pay increased property taxes even if the value of the home has significantly increased and even if the child does not live in the home and only uses it for rental or vacation purposes. Proposition 19 has changed this exclusion in two ways. First, it adds a cap of $1,000,000 to the exclusion so that any increase in property value over $1,000,000 will be taxed. Second, in order to take advantage of the parent-child exclusion, Proposition 19 requires that the child use the home as his or her principal residence. If the child does not use the home as his or her principal residence, a reassessment is triggered, and the property taxes will increase, often dramatically. Many times, such reassessment makes it impossible to remain in the family home.

Given the potentially substantial impact that Proposition 19 has on the assessment of property taxes in California, especially on the transfer of property between parents and their children, it may make sense to consult an estate planning lawyer to determine whether there are tools that you can take advantage of to minimize any negative tax impacts when Proposition 19 goes into effect. For any questions related to Proposition 19, our office is here to help. Please contact us today to schedule an appointment.

Please act quickly. Any transfers to avoid or mitigate the negative impact of Proposition 19 must be recorded prior to February 15, 2021 and the recorder’s office is very backed up due to COVID and the passage of this proposition.c