How Did Proposition 19 Effect the Parent to Child Exclusion?
By Kent Meyer, Assessment Protection Network
We keep getting questions about proposition 19, passed in November 2020. The two issues most questioned are the base value transfer of persons over 55 and the parent to child exclusion. I’ll address the parent to child exclusion here.
The parent to child exclusion was modified effective February 16, 2021. It severely restricted the parent to child exclusion originally effective November 6, 1986. It’s now referred to as the “Intergenerational Transfer” exclusion.
Under the prior law, the primary residence of a parent could be transferred to the children without reassessment regardless of the taxable value. It also allowed up to $1,000,000 of taxable value for non‐primary residential property, or investment property, to be transferred to their children without reassessment.
Under proposition 19, all property transferred from the parents to the children is reassessable on the date of transfer. The primary residence of the parents may receive a value reduction if, and only if, a child utilizes the property as their primary residence. The reduction received will be $1,000,000 or the difference between the parents assessed value and the fair market value of the property, whichever is less.
Here’s two examples:
- The parents’ primary residence is currently assessed at $350,000. The market value of the property is $900,000. The property is reassessed, supplemental bills will be issued, and the child must apply for both an exclusion and a homeowners’ exemption. If approved, the $350,000 is re‐enrolled and the supplemental bills are refunded. This creates a value reduction of $550,000, the difference between the parents assessed value and the market value.
- The parents’ primary residence is currently assessed at $350,000. The market value of the property is $1,600,000. The property is reassessed, supplemental bills will be issued, and the child must apply for both an exclusion and a homeowners’ exemption. If approved, the new enrolled value will be $600,000 and the supplemental bills are partially refunded. This creates a value reduction of $1,000,000 because the difference between the parents assessed value and the fair market value is greater than $1,000,000.
If the child moves out, the reduction is removed and the fair market value as of the date of transfer is restored plus normal factoring (maximum 2% increases) for all intervening years.
Confusion still surrounds who must move into the home if multiple children inherit. The answer is any one or more of the children. But at least one child must live in the house in order to maintain the exclusion. Also, if a child moves out, a different child can move in and still maintain the reduction.
Other questions come up regarding multiple beneficiaries but only one wants to own the property. The one child that wants to keep the property can still receive the property, but they need to be careful regarding how the estate is distributed. If done incorrectly, they could be partially reassessed, increasing their taxable base.
To avoid reassessment, they need to equalize the estate distribution either by having enough existing assets in the estate or through a loan directly to the parents’ trust. The loan to the trust cannot come from the child receiving the property. And the trust must allow for a non pro rata distribution. If the child purchases the property from the trust, make sure the trust contains a right to first refusal. Otherwise, the exclusion will only apply to the portion of the property they inherit.
If your trust does not have a non pro rata distribution clause or a right to first refusal, you may consider speaking with your trust attorney and amending it.
And remember, the Assessor determines the fair market value of the property. This value can be appealed.
*Kent Meyer is a property tax specialist that worked in an Assessor’s office for 17 years and has been representing property owners in front of Assessment Appeals Boards for six years as a taxpayer representative. He can be contacted at email@example.com or via the Assessment Protection Network website at www.apntax.com.