Proposition 19 Information

2020 changes to property tax laws

This past election, California voters passed Proposition 19 , which makes changes to property tax benefits for families, seniors, severely disabled persons, and victims of natural disaster in our state. In response, the Assessors’ Office has consolidated resources, including frequently asked questions, forms and reference links to help you understand and prepare for the upcoming changes.

 

Disclaimer: The information provided is intended to provide general and summary information about Proposition 19. It is not intended to be a legal interpretation or official guidance, or relied upon for any purpose, but is instead a presentation of summary information. Proposition 19 is a constitutional amendment, so additional legislation, regulations, and statewide guidance are expected to clarify its implementation. If there is a conflict between the information provided here and the proposition or any legal authorities implementing or interpreting the proposition, the text of the proposition and the other implementing or interpretive authorities will prevail. Please continue to visit our website or the website of the State Board of Equalization for more information. We encourage you to consult an attorney for advice on your specific situation.

What is Proposition 19?

On November 3, 2020, California voters approved Proposition 19, the Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act. Proposition 19 is constitutional amendment intended to limit people who inherit family properties from keeping the low property tax base unless they use the home as their primary residence, but it also allows homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster to transfer their assessed value of their primary home to a newly purchased or newly constructed replacement primary residence.

Essentially, the new law will create changes to two existing statewide property tax saving programs:

1. Replace Proposition 58 and Proposition 193 by limiting parent-and-child transfer and grandparent-to-grandchild transfer exclusions – Effective 2/16/2021

2. Replace Proposition 60(1986) and Proposition 90 (1988) by expanding senior replacement home transfers – Effective 4/1/2021

Changes to Parent-and-Child and Grandparent-to-Grandchild Transfer Exclusions (Effective February 16, 2021)

Current laws allow parents, grandparents and children to pass on the existing assessed values of their primary residence and other properties up to $1 million in assessed values without reassessment. However, these programs will be limited with fewer tax savings opportunities. See below for the chart developed by the State Board of Equalization to compare the current law and the effects of Proposition 19, pending its enactment.

*Prop. 19: Prop. 58/193 Deadline

 

To address the concerns of not being able to record intergenerational transfers before 2/16/2021, the Office of the Alameda County Assessor will consider the execution and notarization date (notarial execution) on the document to determine eligibility for Prop. 58/193 Intergenerational transfer.

Any parent/child related deed recorded on or before February 16 with a notary date of February 15 or earlier, will be examined to see if Rule 462.260 applies.  We will reach out to the taxpayer to discuss before applying Prop 19.  Any deeds recorded, signed and notarized  on or after February 16 will  be treated under Prop 19.

The Office of the Alameda County Assessor follows the guidance from the BOE regarding the filing deadline.

For example, question #4 from the BOE’S LTA dated Feb. 16, 2021 states:

Question- I have my deed signed and notarized, and have submitted it for recording at my local County Recorder’s Office prior to the February 15, 2021 deadline. What if my deed does not record by the February 15, 2021 deadline? Must my deed be recorded prior to that date in order to still be under the Prop58/193 provisions?

Answer: No. As long as the date of transfer is on or before February 15, 2021, the transfer will qualify for the Prop 58/193 exclusion. Property Tax Rule 462.260 makes clear that the recordation date of a deed is rebuttably presumed to be the transfer date.  this means that if evidence is shown that the transfer occurred prior to the recordation date, the Assessor should accept that earlier date. such evidence could be, for example, the date of a notarized document of transfer, such as a deed.”

Please refer to www.boe.ca.gov/proptaxes/pdf/lta21008.pdf

Changes to Senior Replacement Home Transfers (Effective Apri1 1, 2021)

Current laws allow seniors over 55 years old to transfer the taxable value of their existing home to their new replacement home, so long as the market value of the new home is equal to or less than the existing home’s value.  The program was also limited to once in a lifetime, with additional restrictions where the replacement home is located (usually within the same county or within some counties that allow for reciprocity). These programs will be expanded with more flexibilities. See below for the chart developed by the State Board of Equalization to compare the current law and the effects of Proposition 19, pending its enactment.

Proposition 19 Presentation from December 22nd, 2020 Webinar

On December 22nd, 2020, Assessor La held a webinar (video below) explaining the effects of the upcoming Proposition 19 on current laws and what is currently known and what has yet to be determined. Please click on the link below to access the presentation slides.

PROP 19 12.22.20 FINAL

Proposition 19 FAQ

*DISCLAIMER: This information has been prepared by the Alameda County Office of the Assessor for informational purposes only.  The information below is not legal advice or a substitute for obtaining legal advice from an attorney.  It is not tax advice or a substitute for obtaining tax advise from a CPA or accountant.  Any person who reviews the information should not rely upon it or act on it in any manner without first engaging professional counsel.  The information is intended to communicate general information.

What is Proposition 19?
  • A: On November 3, 2020, California voters approved Proposition 19, the Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act, which changes base value transfer rules and parent/child exclusion rules. Proposition 19 is a constitutional amendment intended to limit people who inherit family properties from keeping the low property tax base unless they use the home as their primary residence.  Additionally, Proposition 19 allows homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster, to transfer their assessed value of their primary home to a newly purchased or newly constructed replacement primary residence
  • Note: Because Proposition 19 is a constitutional amendment, additional legislation, regulations, and statewide guidance are expected to clarify its implementation. If there is a conflict between the information provided here and the Proposition or any legal authorities implementing or interpreting the Proposition, the text of the Proposition and the other implementing or interpretive authorities will prevail.
How did Proposition 19 get introduced to the ballot?
  • A: Proposition 19 was originally introduced as a voter initiative and placed on the November 2020 ballot. On November 3, 2020, California voters approved Proposition 19 and the constitutional amendment passed by a relatively narrow margin 51% / 49%.
What is the Assessor’s role in implementing Proposition 19?
  • A: The Assessor’s Office was not involved in the process of introducing or passing Proposition 19. The Board of Equalization (BOE) is tasked with preparing and issuing instructions to the assessors throughout the state of California.  The Assessor’s role is limited to assessing property within the county for the purposes of taxation according to the changes under Proposition 19.
What are the general property tax implications under Proposition 19?
  • A: Proposition 19 will replace Proposition 58 (1986) and Proposition 193(1996) by limiting parent-and-child transfer and grandparent-to-child transfer exclusions (effective 2/16/2021). Additionally, Proposition 19 will replace Proposition 60(1986) and Proposition 90 (1988) by expanding senior replacement home transfers (effective 4/1/2021).
  • Note: individuals should speak with a CPA and/or tax law attorney regarding specific tax implications.
How is Proposition 19 different from the current law?
  • A: Under current law, parents, grandparents and children to pass on the existing assessed value of their primary residence and other properties up to $1 million in assessed values without reassessment. Under Proposition 19, these programs will be limited with fewer tax savings opportunities. (See the chart developed by the State Board of Equalization here to compare current law and the effects of Proposition 19).  For Base Year Value Transfer, there are 3 general changes that expanded the tax relief benefits for persons age 55 and over, or person’s with permanent disability or, persons and victim’s of wildfire and natural disasters. After April 1, 2021, all counties in California will be accepting intercounty base transfers for qualified claims . Base transfer is no longer limited to one time benefit but up to 3x. The replacement property value is no longer restricted to equal or lesser value.
When does Proposition 19 come into effect?
  • A: Proposition 19 is effective as of February 16, 2021 for Parent/Child Transfers. Proposition 19 is effective as of April 1, 2021 for Base Value Transfers (over 55 years old).
What will happen after February 15, 2021?
  • A: Parent to Child/Grandchild transfers will be eliminated – your residential rentals will be reassessed at transfer to your children (at parent’s death, gift, or sale); your commercial rentals will be reassessed at transfer to your children (at parent’s death, gift, or sale); your industrial rentals will be reassessed at transfer to your children (at parent’s death, gift, or sale); your family vacation home or cabin will be reassessed at transfer to your children (at parent’s death, gift, or sale).
On what date is the value of the original and replacement primary residences determined for purposes of calculating the transferrable taxable value?
  • A: The value of the original and replacement primary residences are determined for purposes of calculating the transferrable taxable value as of the date of sale or the date of purchase or completion of new construction, respectively. See Section 2.1, subdivision (b)(1).
What should I consider if I want to take advantage of the existing law before February 16, 2021?
  • A: Transferring property is a very personal and specific decision. You should consider other financial and tax implications as a result of transferring property or not transferring property.  Property rights should also be considered when making this decision because it changes who has control over the property.  Always seek professional help and advice.  Do not wait until the last minute!  Planning these decisions and recording documents can take time!
  • Note: The Assessor’s office cannot provide legal advice on these matters because everyone’s situation is unique. Please seek legal and financial advice from professional advisors.
What is the Primary Home Exclusion under Proposition 19?
  • A: The Parent to Child/Grandchild Transfers Exclusion permits transferee children/grandchildren to take title of the property without triggering reassessment on the assessed value plus $1 million in market value if the child/grandchild transferee establishes the transferred property as their primary home.
  • Parent Child Principal Residence Transfer Adjustment Formula:
  • Assessed Value: $500,000
  • Market Value: $1.6M
  • Step 1: Minus $1M allowance ($1.6M-$1M=$600,000)
  • Step 2: Compares the two and takes the higher as ongoing assessment
  • Example 1: My parents buy a house in Union City, CA for $100,000 in 1980. The property is now worth $1,000,000 in 2020.  But the property is assessed at about $200,000 ($100,000 plus 2% a year for 40 years compounded) – property taxes are about $2,500 per year in 2020 for my parents. à  If the sum of the assessed value (base value) plus $1M is greater than the market value, then I get to keep the current assessed value.  My parents give me the house and I get to keep the $200,000 assessed value and the low property taxes.
  • Example 2: My parents buy a house in Piedmont, CA for $100,000 in 1980. The property is currently assessed at about $200,000 ($100,000 plus 2% a year for 20 years compounded) – property taxes are about $2,500 per year in 2020 for my parents. à My parents give me the house, my new property taxes are assessed at $1,000,000 rather than the full market value of $2,000,000 but it’s more than $200,000 that my parents were paying on.  The assessed value ($200K) plus $1M is not reassessed.  But $200K remains plus the value over $1.2M.  Value over $1.2M is $800K.  $800K plus original assessed value of $200K equals a new assessed value of $1M.  Thus, the new property tax amount is about $12,500, which is higher than my parent’s amount of $2,500, but lower than the market value assessment of $25,000.  *Note: The transferee must reside in the principal residence within one year of transfer because after February 16, 2021, under Proposition 19, there is no parent-to-child exclusion for properties other than principal residence.
  •  
  • Note: If you or your parents are considering transferring a primary residence, you should speak with an attorney about legal issues and speak with a CPA/accountant/tax attorney regarding tax issues.
Is the parent-child exclusion automatic?
  • A: No. Prior to Proposition 19 taking effect, a child has three years to file for the parent-child exclusion with the Assessor.  Proposition 19 did not change the three-year filing deadline, or the deadline to file within six months of a notice of supplemental assessment if sold to a third party.  Once Proposition 19 takes effect, the child must file for the homeowner’s exemption within one year by filing the Homeowner’s Exemption Claim form within one year, which is different from filing the Claim for Reassessment Exclusion form.  These are different claims, although the homeowners exemption claim form is now required for the parent-child transfer.
  • Note: Speak to an Attorney about legal issues and speak with a CPA/accountant/tax attorney about tax issues.
How many times may spouses transfer an original primary residence pursuant to Proposition 19?
  • A: Each spouse may transfer a base year value up to three See Section 2, subdivision (a); Section 2.1, subdivision (b). Please note that Proposition 19 only covers the transfer of base value of a primary residence for both parent-child transfers and transfers to a replacement dwelling for seniors (55 years and older) and disabled persons, as well as fire victims.
Does Prop 19 apply to residential single-family homes, residential properties with multiple units, and commercial properties?
  • A: Yes, under Proposition 19, any property that is not a primary residence, will no longer qualify for the lower tax basis when transferred from parent to child. Thus, residential property with multiple units or commercial properties that are transferred from parent to child after February 16, 2021, will be reassessed and taxed at the higher tax basis.
When and how is primary home residency established by a transferee under the Proposition 19 exemption for children who inherit property from a parent?
  • A: A transferee child/grandchild must move into the home and establish it as their primary residence within one year of the transfer. The home must be maintained continuously as a family home by an eligible transferee whether by the eligible transferee that initially used the home as a primary residence or subsequently by another eligible transferee that received the property from the eligible transferor.  If the transferee thereafter moves out of the family home and no longer maintains the home as their primary residence, the transferee must notify the Assessor’s Office within 60 days of vacating the primary residence. See Section 2.1, Subdivision (c)(5)(A) and Subdivision (c)(5)(B).
Proposition 19 requires that a family home continue as the family home of the transferee. Must the family home continue as the family home of all transferees
  • A: No, only one transferee needs to maintain the family home as his or her principal residence. See Section 2.1, Subdivision(c)(1) and Subdivision (a)(2).
Proposition 19 requires that a family home/primary residence continue as the family home/primary residence of the transferee. How long must a transferee maintain the property as her family home/primary residence for continued exclusion?
  • A: The exclusion applies only as long as the transferee or another transferee keeps the property as their family home/primary residence. See Section 2.1, Subdivision (c)(1).
If a child later converts residential property from primary residence to a rental property, will re-assessment be triggered? Can the child maintain the lower property tax base?
  • A: No, rental property is not eligible for exclusion under Proposition 19. Any property other than your primary residence, including rental property, does not qualify to receive the lower tax basis.  In the event that the family home/primary residence is no longer used as the primary residence of the transferee, the property should receive the factored base year that applies had the family home not qualified for the exclusion at the time of transfer.  This is because at the time the family home is no longer the primary residence of a transferee, there is no transfer of the property and therefore, there can be no change in ownership on that date.  Rather, at the time the family home is no longer the primary residence of a transferee, the change in ownership exclusion that applied at the initial transfer of the family home is lost.  Therefore, the property is not reassessed, and instead should be taxed at the factored base year value that the property would have had, had the parent-child exclusion not been applied.
  • Example: At the time of transfer from parent to child, the assessed value of the parents’ rental property is $1,500,000 and the market value is $3,000,000. Because this is a rental property, the child receiving the property (transferee) will not be able to benefit from the homeowner’s exclusion.  The assessed value of the rental property for the child will increase to full market value, or $3,000,000.  The property taxes will increase from $15,000 to $30,000.
  • Note: Under Proposition 19, you are required to file for the homeowner’s exclusion within one year of transfer to establish the property as your primary residence. Presently, the law is silent as to what happens if you file late.  Additionally, Proposition 19 does not specifically state the amount of time required to establish primary residency.  The Board of Equalization will likely provide more guidance regarding residency requirements for continuing to receive the homeowner’s exemption benefit.
Proposition 19 makes the parent-child exclusion applicable to family farms. What familial relationship will establish a farm as a “family farm”?
  • A: The “family farm” is the farm that is transferred between parents and children (or when applicable, between grandparents and grandchildren). See Section 2.1, Subdivision (c)(3). Section 2.1, Subdivision (e)(2) defines “family farm” as “any real property which is under cultivation or which is being used for pasture or grazing, or that is used to produce any agricultural commodity, as that term is defined in Secion51201 of the Government code.
Proposition 19 makes the parent-child exclusion applicable to family farms. Must a family farm also be the principal residence of the transferee?
  • A: No, the family farm does not need to be the principal residence of the transferee to qualify for the parent-child exclusion. See Section 2.1, Subdivision(c)(3).
How does Proposition 19 affect second homes and/or vacation homes? Does Proposition 19 eliminate the step-up basis for second homes and/or vacation homes?
  • A: Under Proposition 19, a second home and/or vacation home does not qualify for the parent-child exemption. The legislative intent of Proposition 19 was to protect the family transfers when a family member is going to treat the new property as a primary residence.  Thus, Proposition 19 effectively closes the loophole for vacation homes and other uses that do not include a primary residence. See Section 2.1, Subdivision (c)(1).  If your children are going to keep one or more properties as a rental, vacation home, or primary home, then your pans may be different from someone whose children are planning to sell the real estate after you pass away.  There after property tax savings versus capital gains to consider and Proposition 19 may or may not affect you and your family depending on your specific situation.
  • Note: Discuss your family’s plans and seek advice from your CPA, accountant, or tax attorney.
How does Proposition 19 affect transfers of property from parent-to-child when there are multiple children who are transferred the property?
  • A: The language of Proposition 19 is ambiguous. However, per the Board of Equalization (BOE), only one transferee needs to maintain the family home as his or her principal residence to be eligible for the exemption under Proposition 19 and avoid reassessment of the property.  Please refer to the Board of Equalization’s website.
  • Note: Under the current law, families may avoid reassessment upon transfer of property between parent and children. After February 16, 2021, children transferees will not be able to pass on property tax savings to their children.
What will happen if a parent transfers property to multiple children and one of the children subsequently wishes to sell or gift their ownership in the property?
  • A: If two children own a 50/50 share and one of the children subsequently decides they do not want the property anymore and wishes to either sell or gift their share to their sibling, then this would not qualify for the exclusion because it is a sibling-to-sibling transfer and not a parent-to-child transfer of property.
Must a claimant be “severely disabled” or “severely and permanently disabled” under Proposition 19?
  • A: Proposition 19 requires that a claimant be “severely disabled,” not “severely and permanently disabled.” See Section 2, subdivision (a).
Do both spouses have to be 55 to qualify for the BVT?
  • A: No. Only one spouse has to be 55 years or older to qualify for the BVT.
Does Proposition 19 affect real estate properties in LLCs?
  • A: Primary homes held by an LLC do not qualify for a homeowner’s exemption change. Thus, change in control of an LLC will trigger reassessment of the home.
Does Proposition 19 affect real property held in a revocable trust?
  • A: Yes, real property, including a family home, that is held in a trust is still subject to Proposition 19. A revocable trust does not protect real property from the legal effects of Proposition 19.  A revocable trust is established as a will substitute that dictates how property and other assets within the trust are distributed during or after the testator’s lifetime.  With a revocable trust, a grantor can ensure that the estate can avoid going through the probate process.  A child who is transferred a family home that was being held in a trust, must use the home as their own family home/primary residence to qualify for the parent-child exemption under Proposition 19.
  • Note: Be careful when drafting trust documents. The Assessor’s Office will review the trust documents to determine if a “change in ownership” took place.  For instance, a revocable trust changing beneficiaries may trigger reassessment at the time the beneficiaries of the trust changes.
  • Note: An irrevocable trust (a trust that cannot be changed by the grantor) involves the grantor relinquishing control of the property. At this stage, it is unclear whether or not this will protect real property from the legal effects of Proposition 19.
  • Note: Consult a trusts and estates attorney regarding specific questions about setting up a trust and implications for setting up a trust.
How does Proposition 19 affect revocable transfer on death deeds?
  • A: Because the transfer does not occur until after the owner passes, if the owner passes after February 16, 2021, these deeds will not avoid the effects of the Proposition 19 transfers.
Will any of the answers above pertaining to assessed values be different if the property is located in a different county?
  • A: Possibly. Although the Board of Equalization (BOE) is charged with the statutory responsibility and authority to “[p]rescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing…” (Gov. Code § 15606, subd. (b)), and the BOE must also, “[p]repare and issue instructions to assessors designed to promote uniformity throughout the state and its local taxing jurisdictions in the assessment of property for the purposes of taxation.” (Gov. Code § 15606, subd. (e)), the implementation of laws and filing procedures may differ slightly between counties.
  • Note: Seek guidance from the County Assessor’s Office where the property in question is situated.
Can a parent/grandparent transfer to a minor child?
  • A: Yes, under California law, a minor may own property. Thus, a parent/grandparent may transfer real property to a minor child (under 18 years old).  However, a minor may not convey or make contracts relating to real property.  Therefore, a minor may not purchase, lease, sell or property held directly in his/her name.
  • Note: There are many legal implications involved when transferring property to a minor. When making this consideration you should consult with an attorney.
Proposition 19 requires a transferee of a family home to qualify for the homeowner’s or disabled veteran’s exemption. What is the proper forum for appeal for a transferee denied the homeowner’s or disabled veteran’s exemption?
  • A: A transferee who has been denied the homeowner’s or disabled veteran’s exemption can only file an appeal in superior court.
*Questions we do not yet know the answer to:

Note: Unfortunately, the text of Proposition 19 leaves a number of significant questions unanswered with regards to the constitutional amendment’s proper implementation and administration. Below are questions we do not know the answer to:

 

  • Can a parent transfer consecutive principal residences to children?
  • If a parent transfers their principal residence to multiple children, does only one child have to move into the residence to benefit from the parent-to-child exclusion and avoid reassessment under Proposition 19?
  • How long does the child have to live in the principal residence to retain the parent-to-child exclusion?
  • Can different children live in the principal residence during different periods and still retain the parent-to-child exclusion?
  • How will counties determine that the homeowner exemption is still valid?
  • Will the state track parent-to-child transfers of principal residences? Who is responsible for establishing primary residency for official purposes?
  • Can children transfer to their parents?