Ownership Transfer Within the Family (Prop 19)

On November 3, 2020, California voters approved Proposition 19 (Assembly Constitutional Amendment 11, Stats. 2020, res. Ch. 31.) Prop. 19 adds sections to the California Constitution which in part changes the rules on the parent-child and grandparent-grandchild exclusions (known as Prop. 58/193) for transfers on or after February 16,2021. Provided below are a few important changes approved by Prop. 19 for intergenerational transfers. If you would like to learn more about the implementation of Proposition 19’s intergenerational transfer exclusion, you may wish to read Letter to Assessors No. 2022/012 on the California State Board of Equalization’s website.

The value of the newly acquired property will be enrolled and billed as your new taxable value until your Prop 19 request is processed. This may take up to a year to complete depending on when your application was submitted. Once processed, a refund will be sent for any value difference. For more information please visit boe.ca.gov/prop19.

Before

• Implementing statute: RTC 63.1, Prop 58/193
• Unlimited reassessment exclusion for principal residence
• $1,000,000 reassessment exclusion for transfers of property other than principal residence
• Recipient is not required to live in the property

After

• Implementing statute: RTC 63.2, Prop 19
• Full reassessment exclusion is allowed for principal residence, if the fair market value (FMV) of the principal residence is less than the sum of the taxable value plus $1,000,000 (Note: the $1,000,000 is increased every other year by an adjustment factor that is published by the State Board of Equalization.)
• Partial reassessment exclusion is allowed for principal residences, if the FMV of the family home is more than the sum of the factored base year value plus $1 million (New base year value based on Value Test, see example below)
• No reassessment exclusion for transfers of property other than principal residence
• Recipient is required to live in the property
• Claim for homeowners’ exemption or disabled veterans’ exemption must be filed within one year of the transfer. (Prospective relief may be available if filed after the one year based on Property Tax Rule 462.520)

Parent-Child Transfer Exclusion Calculation

Prop. 19 requires adjustment of the taxable value if the fair market value of the family home exceeds the sum of the taxable value plus $1,000,000.

If the fair market value of the family home is less than the sum of the taxable value plus $1,0000,000, then the taxable value need not be adjusted.

If the fair market value of the family home is equal to or more than the sum of the taxable value plus $1 million, an amount equal to the fair market value of the family home upon purchase by, or transfer to, the transferee, minus the taxable value plus $1,000,000, is added to the taxable value.

EXAMPLE

A single family residence has a taxable value of $425,738. Parent dies on March 1, 2021, and property is inherited by parent's only child. The residence was the principal residence of both parent and child. On parent's date of death, property has a fair market value of $1,750,000.

1. Calculate the sum of the taxable value plus $1,000,000
   • $425,738 + $1,000,000 = $1,425,738
2. Determine whether the fair market value exceeds the sum of the taxable value plus $1,000,000
   • $1,750,000 > $1,425,738? Yes
3. Calculate the difference
   • $1,750,000 - $1,425,738 = $324,262
4. Add difference to taxable value
   • $324,262 - $425,738 = $750,000

Spousal Exclusion

The transfer of property between husband and wife does not result in a reappraisal for property tax purposes. This includes transfers resulting from divorce or death of the spouse. No form is required for this exclusion, but proof of the spousal relationship may be required.