California’s Proposition 19 (passed in 2020) amends existing local property tax reassessment rules (i.e., California’s Proposition 13 and 58) in its Constitution. Proposition 19 affects two categories of residents. First, seniors, severely disabled and victims of wildfire or natural disaster who relocate within California; Second, families who transfer real properties between generations.
Effective April 1, 2021, “an owner of a primary residence who is over 55 years of age, severely disabled, or a victim of a wildfire or natural disaster may transfer the taxable value of their primary residence to a replacement primary residence located anywhere in this state, regardless of the location or value of the replacement primary residence, that is purchased or newly constructed as that person’s principal residence within two years of the sale of the original primary residence.” [https://vig.cdn.sos.ca.gov/2020/general/pdf/topl-prop19.pdf]
This is welcome news for seniors, disabled persons, and wildfire/disaster victims who are no longer restricted to relocating within their existing county.
“For any transfer of taxable value to a replacement primary residence of equal or lesser value than the original primary residence, the taxable value of the replacement primary residence shall be deemed to be the taxable value of the original primary residence.”
“For any transfer of taxable value to a replacement primary residence of greater value than the original primary residence, the taxable value of the replacement primary residence shall be calculated by adding the difference between the full cash value of the original primary residence and the full cash value of the replacement primary residence to the taxable value of the original primary residence.” Thus, the new residence’s additional value is added to the prior residence’s old tax base.
A person seeking to transfer their residence’s tax assessed value must file an application with the assessor in the county of the new residence. Seniors and severely disable property owners may transfer their old residence’s property tax basis up to three times in their lifetime. No such restriction applies to fire and disaster victims.
Next, under existing law (Proposition 58) a parent can transfer their family residence, family farm and up to $1 million in assessed value of other real properties to their children (either during the parent’s life or at death) without changing the property’s assessed value. Similarly a grandparent to grandchild exclusion applies when the grandchild’s parent (who is the child of the grandparent) is deceased.
Effective February 16, 2021, the parent child and grandparent grandchild exclusions from property tax reassessment only apply to transfers of a family home and only if the child or grandchild, as relevant, moves into the family home within 1 year of the transfer. Furthermore, for family homes where the current value at time of transfer exceeds its existing tax assessment (in the hands of the transferor) by more than $1 million (to be adjusted annually), then the excess value is added to the existing assessed value to compute the current assessed value.
Some residents may make wish to transfer real properties to their children (or grandchildren) prior to February 16, 2021, in order to take advantage of existing law. However, the children and grandchildren will not get a step-up in basis at the death of the transferor parent or grandparent. Rather, they will get the transferor’s adjusted basis in the property at time of transfer. When the children sell the property, they will pay capital gains tax on the difference between their basis and the sales price.
It is expected that the tax revenue lost by giving seniors, disabled persons and fire/disaster victims tax relief is more than made up with tax revenue gains on transfers to children and certain transfers to grandchildren. The revenue funds California’s fire-fighting and local schools.
Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.