See the increase of property taxes for transfers of California real property between parents and children.
The proposition starts for transfer made on or after February 16, 2021.
So, what does that mean to you?
The new rules under proposition AB 19?
- For the property to qualify for the principal residence exclusion, the receiving child must use the residence as their own principal residence, and only the first $1 million of additional assessed value is excluded. The property assessor will increase the property tax for value in excess of $1 million.
2.The non-principal residence exclusion has been completely eliminated. Family farms are excluded from the principal residence exclusion.
Transfers that are on or after April 1, 2021, will allow taxpayers who are over the age of 55, severely disabled, or a victim of a wildfire or other natural disaster to transfer their property tax adjusted base-year value to a replacement property anywhere in the state (note: for now, the benefit is limited to counties that have authorized the base-year property transfer). Taxpayers who are over age 55 or disabled will be able to transfer the base-year value of the relinquished property up to three times. The disaster victims can make these transfers for an unlimited number of disaster-related transfer.
Additionally, these taxpayers are no longer limited to replacement properties of equal or lesser value. If they purchase a replacement property with a higher FMV than their original property, the assessed value of the replacement property would be equal to the assessed value of the original property, plus the difference in FMV between the original property and the FMV of the replacement property.
Disaster related new construction AB2013 (CH. 20-124) also added a new construction exclusion for comparable property that is reconstructed on the site of the damaged or destroyed property, for property that has been substantially damaged or destroyed by a Governor-declared disaster on or after January 1, 2017. The exclusion applies to replacement property reconstructed on the site of damaged or destroyed property within five years after the disaster, but only if the reconstructed property is comparable to the substantially damaged or destroyed property. Taxpayers who receive this property tax relief are ineligible for the base-year property transfer relief available for property purchased to replace property destroyed by a disaster. (R&TC 69)
Property is substantially damaged or destroyed if the improvements sustain physical damage amounting to more than 50% of the improvements’ full cash value immediately prior to the disaster.
This leaves a lot of unanswered questions and problems. More information well be coming to address them. However, don't leave money on the table by paying more taxes and losing out! Before you make the decision to gift your Daughter or Son Real property make sure you do your due diligence and get the new rules and answers on AB19 property taxes.
Lillian Meyers CFP®, CDFA®, EA is a Tax Specialist, financial planner in North Bay Area, California helping clients live their best life through the use of financial planning, investment management, and other sophisticated financial options.