I recently wrote this article for a local newspaper and wanted to make sure my clients and professional associates received this important information as well!
Prop 19 – The Good, the Bad and the Ugly
Prop 19 passed with a very narrow margin in California and is bringing major changes to property tax assessment rules. There are some good things about the changes for a select group of people. However, there are major changes to parent to child or grandparent to grandchild transfers that used to be exempt from property tax reassessment. I’ll cover the good news first, then the bad news and then what can be done now before Prop 19 goes into effect.
The Good
Starting April 1, 2021, homeowners over age 55, victims of wildfires or other natural disasters, or who are severely disabled may transfer the assessed value of their existing primary residence to a newly purchased or constructed principal residence. While current law only allows one such transfer, Prop 19 will allow three transfers during a homeowner’s lifetime. The new principal residence may be located anywhere in California, regardless of county whereas current law only allows transfers to or within 13 counties (Ventura being one).
The Bad and the Ugly
Under current law, a transfer of real property from a parent to child or grandparent to grandchild does not trigger reassessment. This means that the child or grandchild gets to keep the same assessment for property tax under Prop 13 that the parent or grandparent had. The lower your assessed value, the lower your property taxes are because your property taxes are based on a percentage of your assessed value.
Under Prop 19, this reassessment exclusion no longer applies to such a transfer unless it is a primary residence to a child or grandchild who uses it in turn as their primary residence. Prop 19 doesn’t stop there. Under current law, the primary residence is wholly exempt from reassessment, regardless of its value. However, Prop 19 only excludes the first $1 million of assessed value. These new rules will go into effect beginning February 16, 2021.
Another blow to current property tax rules is that a transfer from a parent or grandparent of rental property will be reassessed even if the transferee uses the rental property as their primary residence. So, what can be done before these new rules take effect? You may want to consider transferring property before February 16, 2021.
What to do?
There may be significant capital gains tax consequences to consider before making such a transfer. In addition, you will be giving up your property rights, which may not be advisable depending on your situation. Needless to say, you must run the numbers and weigh your options carefully before taking any action. Please contact me if you would like to discuss what your options are for your situation.
I invite you to check out my YouTube channel that has numerous videos on Estate Planning. If there is a topic that you want to learn more about, please let me know and I will add another video!
Here is a link to the Wood Law YouTube channel