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- If it is your plan to transfer real property to your children at some point in the future or you have considered making gifts of real property to your children while alive, doing so before Prop 19 becomes effective on February 15, 2021 will have major property tax ramifications for your children.
For reasons listed below, I would like to advise you to contact your financial advisor immediately if you want to gift real property to your children now or in the near future. It is necessary to complete the property transfer prior February 15, 2021 so your children may take advantage of current property tax laws.
- What are the effects of Prop 19? Prior to the passing of Prop 19 you could gift your primary residence to your children and maintain the current property tax levels no matter the value of the home and no matter whether they were going to live in the home or treat it as an investment property. For non-primary residence (investment or vacation) property your children had an exemption up to $1 million of assessed value for keeping the property taxes at your level.
Under Prop 19 there is no property tax reassessment exemption for non-primary residence property. This means any non-primary residence property that you gift to your children or they inherit from you will be reassessed to current full fair market value for property tax reasons.
- Under Prop 19, for the primary residence if, and only if, your children will be making the gifted/inherited property their primary residence-meaning they are going to move into it and live there-there may be no property tax reassessment. Whether or not there will be a reassessment will depend on its current fair market value and its current assessed value. If the fair market value of the property at the time of the transfer exceeds the assessed value by less than $1 million, then your children would take the current assessed value. If the fair market value of the property at the time of the transfer exceeds the current assessed value by $1 million or more, then your children’s assessed value is the current value of the property less $1 million.
Here is a link to an article that covers this issue in more detail as well as the age 55 transfer questions: https://www.jdsupra.com/legalnews/prop-19-passes-preserve-low-property-47713/ and a second link: https://www.aaepa.com/2020/11/planning-for-californias-proposition-19/