California Proposition 19 Limits Parent-Child & Grandparent-Grandchild Exclusion

by Andrew D. McCarthy

Since 1986, when Proposition 58 passed, certain transfers of real property between parents and their children have been excluded from reassessment for purposes of determining property taxes. Proposition 58 provided an exclusion from reassessment for (1) a principal residence of the transferring parent, and (2) the first $1 million of full cash value of all “other real property” transferred from a parent to a child. Proposition 193, passed in 1996, added a similar reassessment exclusion for transfers between grandparents and their grandchildren (when the grandchildren’s parents are deceased).

In November 2020, California voters approved Proposition 19. Proposition 19 limits the tax benefits described above. Beginning on February 16, 2021, the transferee must continue to use the property as a principal residence in order to qualify for the exclusion. Family farms are also eligible, but the transferee must continue to use the property as a family farm.  Also, the property tax bill will increase if the value of the property at the time of transfer equals or exceeds the parent’s assessed value plus $1 million. If that happens, the transferee’s new combined base year value equals (1) the existing factored base year value, plus (2) the amount by which the fair market value exceeds the sum of the existing factored base year value and $1 million. For an example, see page 4 of Letter to Assessors No. 2020/061. The $1 million amount will be adjusted for inflation beginning February 16, 2023, and every February 16 after that.

Before and After Proposition 19:

 

Before Proposition 19 Proposition 19
Principal Residence
  • Principal residence of transferor
  • No limit on value excluded from reassessment
  • Principal residence (land, in excess of area of reasonable size used as site for residence, may be excluded as “other real property”)
  • Principal residence (or family farm) of transferor and transferee
  • Limit on value that can be excluded from reassessment: current taxable value plus $1,000,000 (adjusted for inflation)
  • Principal residences and family farms
Other Real Property
  • Transferor lifetime limit of $1,000,000 of factored base year value
  • Eliminates exclusion for “other real property” other than the principal residence
Grandparent-Grandchild Middle Generation Limit
  • Parents of grandchild must be deceased on date of transfer
  • No change: Parents of grandchild must be deceased on date of transfer
Filing Period
  • File claim within 3 years after transfer, or before transfer to third party (whichever is earlier)
  • File for homeowners’ exemption within 1 year after transfer
Effective Dates
  • Through February 15, 2021
  • On and after February 16, 2021

The above chart is based on a summary published by the California Board of Equalization.

*This post was updated on January 7, 2021, to correct an error, by changing “current fair market value” to “current taxable value” in the first row of the chart above.