With election day right around the corner, many people are focusing their time and efforts on learning about various candidates’ views and are planning on casting their ballots in what is already a contentious presidential election. However, there is another ballot issue that could have a significant impact on Californians who own real estate, and for their children: Proposition 19. Added to the ballot in June, Proposition 19 could increase property taxes on California real estate when it is transferred from parents to their children.
Today, if a California property owner transfers real estate, the property is reassessed for property tax purposes. However, transfers of the property owner’s principal residence from a parent to a child is exempt from the assessment requirement. In addition, non-principal residence property can be transferred to a child without triggering a new assessment under a $1 million lifetime exclusion (based on the current assessed value), or $2 million for a married couple. Because the current assessed value is frequently less than the current market value, this can result in significant tax savings.
If you have owned real estate in California for years, your assessed value for tax purposes is probably relatively low, benefiting from a 2 percent cap on increases. Under current law, you could transfer that property at its current tax assessed value to a child, who would keep that tax assessed value as long as they own the property.
Among other changes, Proposition 19 would completely eliminate the non-principal residence exclusion, and limit the personal residence exclusion by requiring the child to use it as their own personal residence. In addition, only the first $1 million of assessed value would be excluded. In effect, this means that if the measure is passed in November, families will lose out on these benefits and could find that parent-child transfers of real estate come with unexpected property tax hikes.
It may make sense to talk to your estate planning attorney about planning strategies that could limit the future impact of Proposition 19. To learn more and to discuss your specific situation, contact us at The Estate Planning & Legacy Law Center today!