Property Taxes

Proposition 13

Proposition 13, adopted in 1978 by a vote of the people, placed constitutional limits on the increase rate of property taxes in California. Two identical houses located on the same street may have very different amounts paid in property taxes by the owners each year because a house held in a family for decades is limited to a maximum 2% per year adjustment, whereas the same house sold to a third party will be reassessed based upon the present fair market value. Property tax is capped at 1%, and a property can only be reassessed upon change of ownership or new construction.

Proposition 58 and Proposition 193: Parent-Child Transfers and Grandparent-Grandchild Transfers

Under Proposition 58:

  • The Proposition 13 taxable value is not affected by a transfer;
  • The transfer of real estate to children may be excluded from reassessment;
  • The exclusions are not automatic, and must be filed in a timely manner with the Assessor’s office; AND,
  • Transfers between legal entities, such as corporations or partnerships, that are owned by parents or children do not qualify.

Proposition 193 was a constitutional amendment approved by California to exclude transfers of real property from grandparents to grandchildren from reassessment; provided, however, that all the parents of the qualifying grandchildren are both the children of the grandparents, and are also deceased as of the date of transfer.

Both propositions say that if a sale or transfer is between a parent and child, or a grandparent and grandchild, under limited circumstances, the property won’t be reassessed if all conditions are met and is filed in a timely manner. Property owners can avoid property tax increases when they acquire property from one of these relatives. The new owner’s taxes are instead calculated on Proposition 13’s factored base year value, not the current market value whenever the property was acquired. There is also a $1 million limit (taxable value) on transfers of non-principal residence property. The transfer of primary residences, which have no value limit, and the transfers which are the result of a sale, gift, inheritance, or via trust are all excluded from reassessment because of Propositions 58 and 193. For the transfer of a trust, it is the change in beneficial ownership that is eligible for Parent-Child exclusion.

 

Sale or Transfers of Property

The sale or transfer of real property through grant deeds is the triggering mechanism counties use when reassessing real property to present fair market value. Exceptions exist which prevent reassessment if certain forms are filed with the county assessors. For example, transfers from individuals to their estate planning trust, transfers between co-owners of jointly-held property, transfers for financing, transfers between spouses, transfers between parents and children, and transfers between grandparents and grandchildren are all exempt. Likewise, sales of property by homeowners who purchase replacement residences within their county may also be exempt.

Any time owners of real property contemplate the preparation and signing of deeds, they should have a real estate attorney involved to advise as to the property tax consequences created by the transfer, and to ensure all necessary property tax forms–including forms that exclude property tax reassessment–are properly and timely completed, and submitted to county assessors.

How We Can Help

If you are looking to sell  or transfer property, we encourage you to contact an experienced real estate attorney from NewPoint Law Group to help guide you through the process. To schedule a free consultation, call 1-800-358-0305 or message us online today.