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Are You Inheriting or Transferring a Home in California?
In 2020, voters in California approved Proposition 19, an amendment to the California constitution. Proposition 19 may increase the property taxes on any real estate you inherit from your parents or grandparents.
An Alameda estate planning attorney can explain to you how Proposition 19 affects your own properties and property taxes.
For many Californians, inheriting a home – a home purchased decades ago, when the cost of housing was more affordable for those who earn average salaries – is the only way they will ever afford to own a home.
What Has Been Changed by Proposition 19?
Proposition 19, however, has had a considerable impact on homeowners in California and their families. Children who inherit their parents’ California homes and who do not use those homes as primary residences usually must pay substantially more now in property taxes.
Under Proposition 19, any property that is inherited upon a parent’s death is now automatically reassessed. A tax reassessment can double, triple, or otherwise dramatically increase a property’s tax liability due to the increased value of the property over time.
Before Proposition 19, parents were able to transfer a home to a child (or to a grandchild when the grandchild’s parents are deceased) without a property tax reassessment, and other properties were transferable without a reassessment up to the first million dollars of their assessed value (which is often far lower than the fair market value).
Prop 19, however, limits the ways you may inherit a home without a property tax reassessment. If you plan to transfer your home to your child, or if you are planning to inherit a home from one or both parents, discuss your plans in advance with an Alameda estate planning lawyer.
What is the Purpose of Proposition 19?
Proposition 19 was designed to help people who are 55 and older in California downsize from large, single-family homes into smaller homes. The California Association of Realtors supported Prop 19 and promised it would make homebuying easier for families and first-time homebuyers.
Proposition 19 allows those older Californians who may be seeking to downsize into a smaller home or condominium to keep their low tax rate, provided that they purchase a home of equal or lesser value.
How Does Proposition 19 Work?
Proposition 19 now restricts parent-child and grandparent-grandchild transfer exclusions. These exclusions had previously amounted to substantial tax savings on real estate that the owners have inherited from their parents or grandparents.
However, because of Proposition 19, parent- or grandparent-to-child property transfer exclusions apply now only to a parent’s or grandparent’s primary residence and only if the property will become the new owner’s primary residence.
Since Proposition 19 took effect, if a child in California inherits a home from his or her parent or parents, and if the child does not make the home his or her primary residence within a year, the property tax base is reassessed to the current market value. And, certain forms must be timely filed with the Assessor’s office for the exclusion to be applied.
Can Reassessment Be Avoided?
Additionally, if a primary residence has appreciated more than a million dollars since the parent or grandparent acquired it, any appreciation over a million dollars is reassessed. Proposition 19 eliminates transfer exclusions for any properties that are not primary residences or family farms.
However, there are several ways to avoid the reassessment of a home inherited from a parent or parents. Moving into the home within a year and using it as a primary residence is one option. If you are disabled, under 18, or serving in the armed forces, the reassessment may be delayed.
Another alternative is selling the home within a year. Under Proposition 19, if you do not want an inherited family home to be your primary residence, selling the property may be your best option from a tax perspective.
How Will an Estate Planning Attorney Help You?
Which option should you choose if you transfer a home to your child? It depends on a variety of financial and personal factors. If you have not consulted an Alameda estate planning attorney to review your options, and you are transferring a home to a child, schedule a consultation at once.
Of course, it’s important for a homebuyer to remember that tax advice and financial planning are highly individualized. The guidance and advice that applies to you may not apply to someone else. That is why you must have personalized advice from an Alameda estate planning lawyer.
When you meet with that lawyer, you should also consider preparing a comprehensive estate plan. A comprehensive estate plan in California may include one or more trusts, a financial power of attorney, a last will and testament, and a living will or advance medical directive.
Your estate plan will be unique. It will be based on your own financial and family circumstances, so you must have personalized planning advice. The right estate plan will provide financial security for your loved ones after your death and for many years into the future.
How Can You Choose the Right Estate Planning Attorney?
In California, whether you are inheriting or transferring a home or establishing a comprehensive estate plan, you should arrange to speak with an attorney at Patricia Scott Law. Our lawyers will address your concerns and answer your property tax and estate planning questions.
f your loved ones rely on you, having the right planning advice is imperative. For almost three decades, our attorneys at Patricia Scott Law have provided estate planning advice and services to families, business owners, and others in and near the San Francisco Bay Area.
Learn more about transferring your home or preparing your estate plan – or begin that process now – by promptly contacting Patricia Scott Law. Call 510-694-1098 to schedule a consultation about transferring your home or evaluating your estate planning needs, and let our attorneys put the law to work for you.
