Prop 19: READ THIS NOW If Planning to Transfer Real Property to Your Child or Grandchild
Please note the purpose of this article is to bring Proposition 19 to your attention so you’ll have time to act before the new law takes effect on February 16th 2021. You are advised to talk to your financial planner, tax consultant and/or attorney as soon as possible to determine if, or how the new law will affect your particular tax situation.
California voters passed Proposition 19 in November of 2020. If you have real property that you are intending to transfer from parent to child, or from grandparent to grandchild, you’ll want to act fast to find out if this new law will have severely negative tax consequences for your particular situation.
Current Tax Benefits When Transferring to a Child/Grandchild Under Prop 13
Currently, the law allows parent-to-child, and grandparent-to-grandchild transfers of real property up to $1 million in assessed values without reassessment.
If the property is your primary residence, there is no value limit on the value of the transfer and the child can use the property any way they like once transferred.
For property other than your primary residence (e.g. rental properties), you may transfer up to $1 million in assessed value without reassessment. Each parent can pass on $1 million, so the limit would be $2 million.
Changes Under Prop 19 (Effective February 16, 2021)
There are significant changes under Prop 19. These programs will be limited with fewer tax savings opportunities that could significantly impact tax liability going forward.
There is now a value limit on the tax savings for a principal residence that can be passed along. New law: Value limit of current taxable value plus $1 million (there is an equation for this).
The child/transferee must use the property as their primary residence after the transfer.
Only your principal residence is eligible. Prop 19 eliminates exclusion for other real property.
If you have been planning to leave real property to a child or grandchild, or if your parent or grandparent has indicated they plan to transfer property to you:
Seek professional help from your financial advisor, tax consultant and/or attorney for a review of your complete financial situation before making any decision. There may be other tax or legal consequences you need to be aware of (income tax, inheritance tax, gift taxes, etc.)
The transfer of property rights has other implications. Once you transfer property, are no longer the owner and have no legal rights to the property or any control over how it is used once transferred.
Don’t wait for the last minute. Start the process of learning what your best action may be now. You’ll need time to review with your professional advisors, discuss with your family, and time to complete and file any transfer documents. It is expected that County Recorder Offices will be jammed as we get closer to February 16th, and keep in mind that February 15th is a legal holiday and Recorder Offices will be closed.
If you are considering buying, selling or both but aren't sure if this is the right time for your particular situation, reach out to me and let's talk through it. The more you know, the better decisions you can make.