Trusts and Estates

California Proposition 19, Property Tax Transfers, Exemptions, and Revenue for Wildlife Agencies and Counties Amendment

By Carol Elias Zolla
Zolla Law Firm

Passed by the Assembly and Senate as ACA-11, and Chaptered by Secretary of State on July 1, 2020. Approved by 51.09% of voters on November 3, 2020. Mullin. The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act. In effect April 1, 2011 for replacement of primary residences; in effect February 16, 2021 for transfers of ownership.

Short summary: This California Constitutional Amendment has three components:

  • Allows homeowners who are either over 55, have severe disabilities, or are victims of natural disasters or hazardous waste contamination to purchase a new residence but retain their property tax assessment from a prior home.
  • Limits the applicability of the parent-child (and grandparent-grandchild) exclusion from property tax reassessment to properties that will be used as the recipient’s personal residence.
  • Provides that any additional revenue earned will be used for fire protection and to reimburse counties who have losses in property tax revenue.

Summary:

This measure adds Section 2.1, Section 2.2, and Section 2.3 to Article XIII A of the California Constitution.

Current law (Proposition 60) allows seniors who own a home to purchase a replacement residence that is equal to or lesser in value from the original property, and retain the original property tax assessment. However, seniors may only utilize this benefit one time, and the replacement property must be located in the same county as the original property, unless the original and replacement properties are in two of the ten counties that have agreed to an intercounty base year value transfer (Proposition 90).

Beginning on April 1, 2021, this new Constitutional Amendment extends the persons who are eligible to retain their property tax assessment beyond seniors and onto persons with severe disabilities and victims of natural disasters and hazardous waste contamination. It also allows the replacement property to be more valuable than the original property; the assessment will be adjusted based on the difference in fair market value between the two properties. Finally, it allows homeowners to change properties up to three times during their lifetime and within any county in California.

Current law (Proposition 58) allows property owners to transfer their real property to a parent or a child, by purchase, gift, or inheritance, with the recipient retaining the original owner’s property tax basis, provided the property had served as the original owner’s personal residence, or the total assessed value of all transferred non-residential property does not exceed $1 million. Proposition 193 extended this benefit to certain transfers between grandparents and grandchildren.

Beginning on February 16, 2021, this new Constitutional Amendment limits the applicability of the parent-child and grandparent-grandchild exemptions to transfers of a home or a family farm that will be used as the personal residence of the recipient. If the property’s fair market value at the time of transfer is less than $1 million greater than its assessed value, the property will retain its original assessed value. If the property is worth more than $1 million over the assessed value, only $1 million is excluded from property tax reassessment. The parent-child and grandparent-grandchild exclusion for any real estate other than a personal residence has been eliminated.

The Legislature expects significant revenue from the second component of this law, and minor loses in revenue in some counties if more eligible persons move to those locales. As such, 75% of the net revenue will be given to fire relief, but 25% of the net revenue will be allocated to counties that see reduced property taxes due to an influx of seniors, disabled persons, or victims of natural disasters or hazardous waste contamination.

This law will have a significant impact on our wealthy clients, who intend to transfer commercial buildings, multi-unit residential units, and even vacation homes to their children at death at a low property tax basis. A client may hope to rush an inter vivos gift or an installment sale to a child prior to February 16, 2021 to take advantage of the benefits of the prior law and the currently high estate and gift tax exclusion. However, attorneys must alert their clients to the loss of the step-up in basis if a property is gifted (rather than bequeathed at death) and counsel clients to understand that once the property is transferred, it is out of their control. The savvy attorney will understand that although decisions of this nature must be made promptly, the client must be thoroughly informed of the pros and cons associated with the transfer to avoid remorse if family or tax situations change in the future.

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