California is unique in many ways, but one of the most unique features of California is the set of laws governing property tax assessments and reassessments of property value. These rules changed within the last couple of years, so now is a good time to examine the current law.
When you purchase real property, the value of the purchase becomes your property tax basis. This tax basis is used to calculate your annual property taxes. Typically, property taxes are 1% of the tax basis value annually, but there are often local add on bonds or taxes that will increase this base percentage a bit.
Proposition 13 (1978) – Property tax basis cannot be increased more than 2% annually unless there is a change of ownership. A change of ownership occurs when a property is sold or transferred.
Proposition 58 (1986) – Property passing from a parent to child (or vice versa) is excluded from reassessment. This means the property tax basis remains the same. There is an unlimited exclusion for the primary residence, and up to an additional $1,000,000 exclusion for commercial and/or investment property
Proposition 193 (1996) – Property passing from grandparent to grandchild (or vice versa) is excluded from reassessment if the middle generation is predeceased. Same as Prop 58, property tax basis remains the same. Same as Prop 58 regarding exclusion limitations.
Proposition 19 (2020) – Prop 58 and 193 exclusions now only apply to transfers of the parent/child’s primary residence and the receiving parent/child must use the property as his/her primary residence. The amount of exclusion is also limited to $1,000,000.
As you can see, Proposition 19 changed many key attributes of the prior law. With the primary residency requirement for the inheriting party, many children will not be able to keep the property inherited by their parents. In addition, it completely eliminated the exclusion for commercial or investment property.Don’t get caught off guard by a reassessment. Contact Tresp Law, APC today to ensure that the value of your home remains with you and doesn’t get consumed by taxes. Call us any time at 858-248-2779 for a free consultation.
