California Proposition 19 has significantly changed property tax laws, impacting how families transfer property between generations. This proposition, passed by voters in November 2020, affects homeowners, heirs, and estate planning strategies across the state. By understanding the new rules and their implications, you can make informed decisions about your property and ensure that your estate plan aligns with these changes. This blog explores the key aspects of Proposition 19 and what it means for you and your family.
What Is California Proposition 19?
California Proposition 19, approved by voters in November 2020, introduced significant changes to property tax laws. It allows eligible homeowners—such as those over 55, severely disabled, or victims of natural disasters—to transfer their existing property tax base to a new home up to three times. It also limits parent-to-child and grandparent-to-grandchild property tax exclusions. Now, these exclusions are only applicable if the inheriting family member uses the home as their primary residence. These changes aim to provide tax relief to certain homeowners while addressing concerns about property tax revenue for local governments.
Implications for Property Tax Transfers
Proposition 19 has redefined property tax transfers, significantly impacting how property is passed from parents to children. Under this law, the parent-to-child exclusion is limited to transferring a primary residence, and the child must use the home as their primary residence to qualify for the property tax exclusion. Additionally, there is a cap on the exclusion amount. If the home’s market value exceeds the parent’s taxable value by more than $1 million, the excess will be reassessed at current market rates, potentially increasing the property tax. These changes mean that families must carefully consider how to transfer properties to minimize tax burdens.
Impact on Primary Residence and Family Homes
Proposition 19 significantly impacts the transfer of primary residences and family homes. To benefit from the property tax exclusion, the inheriting family member must use the inherited home as their primary residence. If the home’s market value exceeds the original taxable value by more than $1 million, the excess amount will be reassessed at current market rates, potentially increasing the property tax. This change aims to ensure that property tax benefits apply to those who genuinely use the home, encouraging more accurate assessments and potentially leading to higher taxes for heirs who do not meet these conditions.
Considerations for Estate Planning
With Proposition 19 in effect, it’s crucial to reassess your estate planning strategies to align with these property tax rules. First, determine whether your heirs will use inherited properties as their primary residences, as this will determine eligibility for property tax exclusions. In addition, it’s important to consider the $1 million cap on the exclusion amount, which could lead to higher taxes if the property’s market value significantly exceeds the original taxable value.
For those with valuable real estate, exploring trusts or other legal instruments might provide tax advantages. Additionally, remember that the new rules limit the frequency of transferring a tax base to a new home, so strategic planning around timing and eligibility is essential. Regularly reviewing and updating your estate plan with these considerations in mind will help ensure that your loved ones are not burdened with unexpected property tax increases.
Proposition 19 and Your Estate Plan
At OC Wills & Trust, we can help you navigate the complexities of Proposition 19 to ensure your estate plan aligns with these regulations. We ensure your family’s assets are protected and tax burdens minimized. Contact us today for a consultation and secure your family’s future.
