What’s one of the most critical issues in California real estate today?
How CA Prop 19 impacts property transfers between family members and changes to property tax rules.
Mary Piasta, Partner
The State Board of Equalization has provided comparison charts of current law and the effects of Proposition 19, pending its enactment.
Hot Estate Planning Issue: CA Prop 19 impacts property transfers between family members and changes property tax rules
Were you planning to leave your primary residence or other property to your children or grandchildren in your living trust or will? Proposition 19, which recently passed by 51% on the November ballot, is taking away the reassessment exclusion between parents and children as we know it.
You need to make some important decisions before it is too late. If you act now, you can transfer property to your children without triggering a reassessment. You can transfer a primary residence of any market value as long as the assessed value is under one million dollars, and you can transfer any other type of real property (land, commercial or second home) to your children as long as the assessed value is under one million dollars. You must make the transfer and fill out the exclusion form. We can help.
You get one day after Valentine’s Day, February 15th, to record your transfer. On February 16, if you transfer property to your children, the exclusion will not be granted for property other than your primary residence. What happens if you transfer your primary residence after the deadline? Your house needs to legitimately become your children’s primary residence to qualify for the new parent-to-child exclusion form. How cozy all of you living together. Even then the property will be reassessed, not all the way to market value but the value of the residence will be increased using a real estate price index and then taxed on that value, which will be revalued every year!
Transferring now versus when you pass away may not afford your children the step-up in basis (the difference between acquisition price and market value on the date of death) and they may have to pay more capital gains taxes if they were to eventually sell, it may be worth it. Depending on the type of property, the holding period, the known and projected appreciation of real estate it may make sense to transfer an income property to them. If you know one of your kids wants the family home to live in one day or all of the kids want it for potential rental income, you may want to transfer now. CNBC reports that it is Joe Biden’s intention to “… levy a tax on the unrealized appreciation of assets passed on at death” so the death of the step-up in basis is coming anyway!
In happier news, if you decide to “downsize” and move out of your cozy home after April Fool’s Day 2021, you can choose any county in California not just the handfuls of Counties that would accept the transfer of your base year value already. Ah, but you can’t leave your base year value and take it with you too. You will need to transfer the base year value to your new digs and then transfer it to the kids. Physically you just can’t get away from those kids after February 15, 2020.
Give us a call and we can help you with your next move, even it’s only on paper.