Voting season is just around the corner, and with that comes numerous propositions on the ballot. One of them is especially important for California property owners and should be looked into with more detail. Proposition 19 was added to the ballot in June, which calls for the repeal of Proposition 58 and Proposition 193. If passed, it may result in an increase in property taxes for transfers of California real property between parents and children as well as grandparents and grandchildren.
When transferring ownership of a property in California, it generally results in a reassessment for property tax purposes. Currently, Prop 58 and Prop 193 provide property tax relief for real property transfers between parents and children and from grandparents to grandchildren. These propositions permit the transfer of a personal residence of unlimited value between parents/children and grandparents/grandchildren without being subject to reassessment.In addition, there is a $1 million lifetime non-principal residence exclusion which allows the transfer of all other types of property (rental properties, second homes, commercial properties) without triggering a reassessment.
If Proposition 19 is passed by voters, the property tax protection California residents have received will be greatly altered:
- In order to qualify for the principal residence exclusion, it would require the receiving child/grandchild to use the residence as their primary residence. Also, the exclusion amount would not be unlimited. It would only be on the first $1 million between the homes original purchase price and its market value.
- The non-principal residence exclusion would be eliminated entirely.
Since Proposition 19 would greatly limit the principal residence exclusion and eliminate the non-principal residence exclusion entirely, families may want to consider additional strategies when dealing with the transfer of real property. Our firm can help you plan ahead for future transfers should Proposition 19 be approved. It is also the recommendation of this firm that Proposition 19 should receive a NO vote as these transfers are common and the reassessment exclusion has been helpful to so many families.