Prop 19 Changes Taxation of Transferred Home Property

Homeowners in the coming months will start to see the effects of Proposition 19, which will drastically change tax rates when property is transferred.

Originally placed on the Nov. 3 general election ballot, Proposition 19 creates added responsibility of taxation on those inheriting property to create tax benefits for people age 55 or older, those with disabilities and residents displaced by wildfires and other natural disasters.

One of the changes set to take effect Feb. 16 is the tax assessment for inherited property.

“Under current law, when a parent transfers ownership of his or her principal residence to a child, the property’s value for tax assessment purposes is not reassessed, regardless of how the child uses the residence,” said Michele Mulrooney and Justin D. Alt of Venable, LLP. “Prop 19 changes this by requiring that the child or children use the residence as their own principal residence, or it will be reassessed.”

This change affects the current ability to inherit property and use it either as a second home or rental property without being reassessed for taxation. The change in February would require individuals acquiring property to make it their primary residence or it would be reassessed.

Even with the primary residence clause, there still may be a chance that tax reassessment can occur.

“Even if the child uses the residence as his or her own, there is a cap of $1 million on the exclusion,” Mulroony and Alt said.

The person inheriting property would be responsible for tax reassessment if the value of the property has increased by $1 million since its purchase price.

Another benefit from the proposition set to take effect April 21 is expansion of parties who can exercise transfer of taxable value towards a new home.

“Under existing law, only homeowners over 55 years of age or certain disabled persons could make use of this benefit,” Mulrooney and Alt said. “And they could do so only if their new home is in the same county as their old home; and the value of their new home is less than or equal to the value of their old home.”

The law continues to provide that benefit to those respective groups, but also adds homeowners that are displaced by wildfires or other natural disasters regardless of their age or disabilities. The restriction of the new property having to be in the same county as the previous one has also been expanded to anywhere within the state of California.

Proposition 19 passed in last November’s election with just 51% of the statewide vote and being opposed by several major California newspapers, including the Press-Telegram.

Some think that the new provisions could potentially lead to inequalities in minority communities.

According to current data provided by the Los Angeles County Assessor, a significant number of inheritance tax exemptions are claimed in the city of Compton than both Beverly Hills and Malibu combined.

The Greenlining Institute, a non-profit research and community activity group based in Oakland, Calif. mirrors in its research the findings from the county assessor and fears that changes to the tax exemption would have an inverse effect on communities of color, eventually leading to further gentrification of those communities by added tax burdens.

Venerable LLC highly recommends that any planned transfer of property be talked over extensively with an estate planner to verify how Proposition 19 will affect them.

eric@beachcomber.news