In 2020, voters in California approved a constitutional amendment, Proposition 19, that potentially increases the property tax on real estate inherited from parents or grandparents. A Pasadena property tax attorney at Barilari & Williams can help you understand how Prop 19 affects your own properties and taxes.
Proposition 19 was narrowly approved, winning just over 51 percent of the vote. It significantly limits property tax benefits for certain real estate transfers between family members, such as the transfer of property from a parent to a child following the death of the parent.
Prior to Proposition 19, parents could transfer real estate to a child (or to a grandchild if the grandchild’s parent is deceased) without a property reassessment for tax purposes. A primary residence was transferable without regard to its value, and other real estate was transferable without a property reassessment up to the first one million dollars in value.
Proposition 19 changed Proposition 58 (1986) and Proposition 193 (1996) by limiting parent-to-child and grandparent-to-grandchild transfer exclusions that amounted to thousands of dollars in tax savings on real estate that the owners had inherited from their parents or grandparents.
How Do Property Transfer Exclusions Apply Now?
Under Prop 19, since February 2021, parent-child property transfer exclusions now apply only to the primary residence of the parent or grandparent and only when the transferred property will be the primary residence of the new owner. The exclusion also still applies to a family farm transfer.
However, if the transferred primary residence has appreciated over a million dollars in the years since it was acquired by the parent or grandparent, any amount over that million-dollar figure will be reassessed. Furthermore, Prop 19 additionally eliminates any transfer exclusion for any properties other than primary residences.
What About Transferring a Property to a Business?
The rules are somewhat more complicated for transferring a property to a business entity such as a corporation or a limited liability company. A property may be transferred to a business entity without a reassessment provided that there is no change in the ownership of the property.
For instance, if a parent and two children individually own one-third of a property, and if they also each own one-third of a business entity, so long as the property does not have a change of majority ownership, the property may be transferred to the business entity without a reassessment.
Let Barilari & Williams Advise You About Property Taxes
Basically, if you own a property in California and you transfer that real estate to your children or grandchildren, Proposition 19 limits your options for making the transfer without a reassessment.
With offices in Pasadena and Long Beach, the California estate planning attorneys at Barilari & Williams have more than a decade of combined experience helping our clients understand – and where possible, reduce – their property tax burden.
The best estate planning includes property tax planning and a number of other considerations. A Pasadena property tax lawyer at Barilari & Williams can help you protect your properties and assets from unnecessary taxes and other risks including divorce, creditors, and lawsuits.
Your first consultation with an attorney at Barilari & Williams is offered at no cost. To learn more about the effects of Proposition 19 – and to learn more about proper estate planning – call us now at 888-EST-PLAN to schedule that consultation.
