Proposition 19 contains 2 main changes in property tax assessments:
Change #1: Transfer of Taxable Value: starts April 1, 2021
Current law:
– Only homeowners over 55 years of age or certain disabled persons qualifies.
– Only if:
(1) their new home is in the same county as their old home; and
(2) the price of their new home is less than or equal to the value of their old home.
– They can only do this once in their lifetime.
New law:
– Include victims of wildfire or other natural disasters, regardless of age or disabilities.
– Does not have to be in the same county. Can be anywhere in California.
– Price of the new home can be more than their old home. The increase in value is added to the taxable value of the old home. Example: assume a homeowner is over 55. Her house has a taxable value of $300,000. She sells it for $1 million. If she buys a new home anywhere in California for $1 million or less, she can transfer her $300,000 taxable value to the new home, and the property tax will be the same as the old house. But if she wants to upgrade to a $1.5 million home, her new home’s taxable value will be $800,000 – the taxable value of her old home transferred ($300,000) plus the upgrade value ($1.5 million – $1 million.)
– They can do this up to 3 times.
What does this mean for you?
If you’re over 55 yr old and need to move to another county or to upgrade to a more expensive home, consider waiting until after April 1, 2021 to do so, in order to transfer your current property tax to the new homes. Of course, you need to consider other factors as well, such as, interest rate might rise up in April, house prices may change, etc….
Change #2: Parent-Child Exclusion; starts February 16, 2021
Current law:
– When a parent transfers ownership of his/her primary or rental properties to the children, the property tax is not reassessed, regardless how the child uses the residence, and regardless of what the fair market values are at.
New law:
– Only applies to parent’s primary property AND the children must also use the residence as their own primary residence. Plus, there is a cap of $1 million on the exclusion.
If the increase in value is less than or equal to $1 million, no adjustment is made. If the increase in value is more than $1 million, the increase in value after the first $1 million is added to the tax assessed value.
– For example:
Jane has a primary residence, currently worth $2 million, with an assessed value of $400,000; and property tax is currently $4,800 per year. Jane also has a rental property currently worth $3 million, with an assessed value of $300,000, and property tax is currently $3,600 per year. Jane has one child, Bob, which she will leave all her properties to.
With current law: Jane could leave both these properties to Bob and he’d continue to pay the same property taxes Jane would have.
With the new law: If Jane transferred her primary residence to Bob, and Bob doesn’t live in it, the property tax would increase from $4,800 to $24,000 per year. If Bob lives in it, the new reassessed value would be $1 million (the increase in value after the first $1 million = $600,000 + current tax assessed value $400,000), and the property tax would only increase from $4,800 to $12,000.
If Jane transferred the rental property to Bob, it would be reassessed at fair market value and Bob’s property taxes would go from the $3,600 to $36,000.
What does this mean for you?
If you have only 1 primary home, and you intend to give that to a child who will live in it, then they most likely don’t have a steep increase in property tax when you pass away.
If you have rental properties or have more than 1 child, you should review the advantages (keeping the low property taxes) & disadvantages (capital gains, divorces, …) of transferring outright to your children now, versus waiting until you passed. Of course, you should do this before February 15, 2021 – when the new laws will take effect.
For more about Proposition 19, or if you need help in reviewing your estate planning documents to see if there’s any necessary change due to this new law, contact the Law Office of Matthew Triet Vo at (408) 978-7076.
Medi-Cal Planning
