In November 2020, California voters passed Proposition 19, which modifies Article XIIIA (aka Prop 13) of the California Constitution and significantly affects certain types of real property transfers. Prop 13; passed in 1978, limits annual increases in assessed values to a maximum 2% annually, except when there is new construction and/or a transfer of ownership.
Proposition 19 Expands Base Year Value Transfer Benefits
Applications
Applications must be filed in the county where the transaction is completed. For Sacramento County property owners, forms can be directly accessed below:
Homeowners who are 55 or older, or who are severely and permanently disabled, or who are victims of a Governor declared disaster and sustained more than 50% damage, wishing to transfer their lower taxable value from their original property to a replacement property in California now have more options:
- A homeowner can purchase a higher value property. The transfer no longer has to be to a property of equal or lesser value. The original property's lower assessed value can be transferred and an upward adjustment is added for the difference.
- Equal or lesser value is defined as:
- 100% if replacement purchased/newly constructed prior to the sale of the original property.
- 105% if replacement purchased/newly constructed in first year after the sale.
- 110% if replacement purchased/newly constructed in second year after the sale
- An amount above the “equal or lesser value" is added to the transferable taxable value.
- An inter-county transfer can occur between any two counties in the state of California.
- A qualifying base year value transfer can be made up to 3 times per person.
- For Governor declared disaster victims, there is no limit on the number of times the benefit can be used.
NOTE: An accessory dwelling unit (ADU) is considered part of a primary residence for determining qualified property and taxable value to be transferred. The claimant need only occupy one of the units to qualify for the base year value transfer.
Timing
Proposition 19 applies to base year value transfers that occur after March 31, 2021, involving people over 55, severely and permanently disabled, or disaster victims whose property sustains more than 50% damage. This means one of the two events (sale of the original property or purchase or construction completion of a replacement property) must occur on or after April 1, 2021.
Regardless of when the events occur, to qualify for a base year value transfer, both events must occur within two years of each other, and there is no requirement for the events to happen in a specific order. However, if the replacement property is purchased or newly constructed prior to the sale of the original property, the owner is responsible to pay property taxes on the full value of the replacement property until the sale of the original property occurs, only then can the base year value of the original property be transferred.
Any claim under this section must be filed within three years of the date of the purchase or the completion of new construction of the replacement primary residence to obtain the full benefit, retrospective back to the date of the qualifying transfer. Claims filed after three years only receive prospective relief.
Proposition 19 Eliminates and Reduces Certain Benefits under the Inheritance Reassessment Exclusion
Applications
Applications must be filed in the county where the transaction is completed. For Sacramento County property owners, forms can be directly accessed below:
Principle Residence Requirement within One Year
Children/grandchildren who inherit their parents' /grandparents' principal residence but choose not to make the home their principal residence will now have the property re-assessed at fair market value. In order to have the transfer excluded from reassessment, heirs must now file and qualify to receive the Homeowner's Exemption or Disabled Veterans' Exemption within one year of transfer of ownership to receive the full benefit. If they qualify by moving into the property within one year but file later, only prospective relief can be granted.
NOTE: If there are multiple heirs, only one needs to make the property their principal residence.
The heir(s) must continue occupying the residence into perpetuity in order to maintain the exclusion from reassessment. If the heir moves out, the taxable value of the property will be adjusted to reflective the market value as of the date they inherited the property plus all inflation factor adjustments (a maximum of 2% per year under Prop13), beginning with the lien date following the date they move out. If there are multiple heirs and the heir who initially moved in moves out, another heir can move in within one year, obtain a homeowners' or Disabled Veterans' exemption, and maintain the reassessment exclusion.
Family Farm Transfers
Family farm transfers are allowable for this exclusion without the principal residence requirement. (RTC section 63.2(e)(4) defines a "family farm" as any real property that is under cultivation or being used for pasture or grazing or to produce any agricultural commodity.)
Value Limit
There is a limit to the value that can be excluded for a family home or each legal parcel of a family farm. The value limit is equal to the property's taxable value at time of transfer plus $1 million, currently. If the market value exceeds this limit, the difference is added to the taxable value.
Further, this exclusion no longer applies to $1,000,000 of other property, such as residential rental property, vacation homes, or commercial property.
This reset of the taxable value to fair market value can significantly increase the taxable value, as the value differences from base year 1975 properties to current market value can be significant. For example, a family property currently assessed for $50,000 with an annual property tax of approximately $600 could now be re-assessed to current market value at $750,000 resulting in an annual property tax of approximately $9,000. This significant property tax increase could affect the feasibility of ownership of inherited family properties.
The $1 million limit is adjusted for inflation biennially, beginning in February 2023. Please see the chart below.
Market Value Limit Adjustments
2/16/2021 $1,000,000
2/16/2023 $1,022,600
The next biennial adjustment required by statue will be on 2/16/2025.
Property Held in Trusts
This may also impact common estate-planning trusts like qualified personal residence trusts, which allows the transfer of a residence to a trust while that residence can still be occupied for a fixed number of years. The parent continues to live in the residence as their primary residence, and at the end of the fixed number of years, the residence transfers to their child. Under former law, when the child becomes the owner, they would qualify for the parent-child exclusion but under Proposition 19, the child would have to make the residence their primary residence or the property is reassessed. Those with a trust that holds a residence in the name of their child as a remainder beneficiary or those in the process of estate planning should contact a tax and estate-planning professional to discuss potential impacts.
NOTE: Legal entities do not qualify for this exclusion.
Grandparent/Grandchild Exclusion
The Grandparent to Grandchild Exclusion is subject to the same dates and principal residence requirements as the Parent to Child Exclusion as stated above, with one limiting condition: Parent(s) of the grandchild, who qualifies as a child of grandparent, must be deceased on the date of transfer.
Timing
Proposition 19 applies to Parent-Child/Grandparent-Grandchild transfers completed after February 15, 2021. Qualifying Parent-Child/Grandparent-Grandchild transfers completed prior to that date will be subject to the prior more permissive rules (Prop 58).
Any claim under this section must be filed within three years of the date of the transfer between parents and children (grandparents/grandchildren) to receive the full benefit, retrospectively back to the date of transfer. Claim forms received after three years are only entitled to receive prospective relief.
Important NOTE: Transfers and sales of property may have income tax consequences and it is recommended that you consult an income tax professional in advance.
Prop 19 Frequently Asked Questions
Additional Resources
· CA Board of Equalization (BOE):
· Taxpayers' Rights Advocate Office Information Sheets on Property Tax Savings
Questions
Sacramento County property owners with questions are encouraged to contact the Assessor's Property Transfer Section at Prop19@saccounty.gov or (916) 875-0750.
