Proposition 19 was approved by California voters on November 3, 2020, and was enacted in April 2021. This proposition was designed to provide protection of primary residences for seniors, severely disabled, families, and victims of wildfire or natural disasters. This proposition includes two provisions for property tax reappraisal exclusions:
- Parent-child and grandparent-grandchild exclusions
- Base year value transfer of a primary residence for persons at least age 55 or severely disabled or victims of wildfire or natural disasters.
Parent-child and Grandparent-grandchild Exclusion
This exclusion, effective on February 16, 2021, allows the child or grandchild (transferee) to retain the taxable value of theparent or grandparent (transferor).
The property value is limitedto the current taxable value plus $1 million (adjusted annually by the California House Price Index). To qualify, the property had to be the primary residence of the parent or grandparent and the recipient has one year to establish the property as their primary residence. Family farms are also covered by this exclusion; however, the recipient is not required to make a family farm their primary residence.
To apply for the exclusion, an applicant must file a form with the County Assessor where the property is located within 3 years of the transfer date. The relevant forms are as follows:
- Form BOE-19-P for parent-child transfers
- BOE-19-G for grandparent-grandchild transfers
The recipient must also file for the homeowners’ exemption within one year of the transfer date by filing Form BOE-266.
Note: At the time of filing, the recipient must still own and occupy the property as their principal residence.
Base Year Value Transfer for Persons At Least 55 or Disabled or Victims of Wildfire or Natural Disasters
This exclusion, effective on April 1, 2021, allows seniors, severely disabled, families, and victims of wildfire or natural disasters to transfer the base value of their original property to a replacement property. There is no limit on the market value of the replacement property compared to the original property. The difference between the market value of the replacement property to the original property will be added to the transferred value. A qualified person can use this exclusion up to three times. The property must meet the following to qualify:
- Both the original and the replacement properties must be the principal residence.
- The location of the replacement home can be anywhere inthe state of California.
To apply for the base year value transfer, one of the following forms is required to be filed within 3 years of the purchase of the replacement home or the completion of the new construction. Additionally, at the time of filing, the claimant must still own and occupy the replacement property as their principal residence.
- BOE-19-B for Seniors Older Than 55 Years
- BOE-19-D and BOE-19-DC (Certificate of disability) for Disabled
- BOE-19-V for Victims of Wildfire or Natural Disaster
What Changed?
Proposition 19 is more favorable to the base year value transfer for seniors, disabled, or victims of wildfire and natural disasters.
Proposition 19 has expanded the location of replacement homes. Previously the replacement property had to be in the same county within California. Now, the property can be located anywhere in California. Proposition 19 also lifted the value limitation of the equal or lesser value than the original property. Proposition 19 increased the allowed transfer from one time to three times.
Proposition 19 specifies more restrictions on the parent-child and Grandparent-grandchild transfer.
Prior to Proposition 19, parents or grandparents could transfer their primary residence to their child or grandchild without increasing the value of the property for property tax purposes and the recipient did not need to establish the property as their primary residence. This is no longer the case, as now the recipient must establish the property as their primary residence. This could be severely limiting for those parent or grandparents with multiple children who wish to transfer equal ownership to each child and avoid reassessment as all children would need to establish the residence as their primary residence to present reassessment.
Previously, parents or grandparents could transfer other properties, such as vacation homes, rental and commercial properties valued up to $1,000,000, to their children or grandchildren. These types of properties are now excluded under Proposition 19.
Before Proposition 19, parents or grandparents could move their primary residence into intentionally disregarded grantor trusts or Qualified Personal Residence Trusts and continue living on the property. This technique will no longer prevent the property from being reassessed for property tax purposes as the beneficiary is required to use the property as their primary residence.
We Can Help
Proposition 19 has changed key factors when considering traditional estate tax methods of transferring properties. Please reach out to us with any questions so that we may help you plan effectively.
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