Are you a California homeowner who’s been thinking about San Diego property tax planning? Since Prop 19 took effect in February 2021, the landscape for inherited property taxes has changed dramatically.
California’s Proposition 19 now has two key components: One that expands tax portability for seniors and disabled homeowners, and another that restricts the tax benefits of inherited properties. Both have strict deadlines for filing the proper assessor forms.
The most immediate changes are to the Prop 19 parent-child exclusion. Previously, Proposition 58 allowed for the low tax base-year value transfer of a parents’ property, with no tax assessment. But under Prop 19, those protections have been eliminated. The new primary residence rules now restrict the low tax base at a $1M cap within one year of the transfer. Transfers of rental/second homes and other non-primary residences are now subject to full reassessment at current market value.
When the exclusion applies (and when it doesn’t)
There’s good news for homeowners 55+, people with disabilities, and natural disaster victims. Under the new Prop 19, you now have more flexibility to move and keep your low property tax base.
- You can now transfer your tax base to a new home located anywhere in California. County restrictions no longer apply.
- Seniors and disabled homeowners can transfer their tax base up to three times over their lifetime. Natural disaster victims get unlimited transfers.
- There are no “equal or lesser value” limits, so your replacement home can be more expensive than the original. The difference in value is added to the original tax basis to determine the new value.
- To qualify, you must sell your original home and buy or complete construction of a replacement home within two years.
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At the same time, Prop 19 severely limits the tax benefits previously available for inherited properties. These changes apply to all transfers after February 15, 2021.
- To avoid a full property tax reassessment, the new principal residence requirement requires the inheriting child or grandchild to use the property as their primary residence.
- Even then, there’s a $1 million exclusion cap on the inherited value. If the home’s fair market value over cap exceeds that amount, a partial tax reassessment applies.
- If the inherited property is used as a rental, vacation home, or other non-primary residence, it will be fully reassessed at its current market value.
Prop 19 also limits exclusions for multi-property families and sibling buyouts. When multiple children inherit a home and only one moves in, the exclusion applies only to that child’s interest or share in the property. The shares of siblings who do not meet the residency requirement are subject to reassessment. Property held in trusts on title is still subject to Prop 19.
Practical steps for Trustees & Heirs
The most important part of navigating Prop 19 is to act quickly after a transfer, typically from the date of death. Whether the property qualifies for the exclusion or not, any change of ownership reporting (including death) must go to the County Assessor. This often involves filing forms like the Preliminary Change of Ownership Report (PCOR) and the claim form (BOE-19-P).
To retain the tax benefit, the inheriting child must file for the parent-child exclusion and apply for the homeowner’s exemption within a one year timeline. Failure to file on time can result in full reassessment, meaning you lose the entire base-year value transfer benefit.
And if there are multiple heirs and only one is moving in, equalization strategies can help you fairly compensate the non-occupying siblings. This might involve using estate assets or refinancing to buy out the other sibling’s shares.
Remember, Prop 19 timelines can be strict, and the filing process isn’t always straightforward — especially in multi-heir situations. For trusted guidance and trust administration help, call Hatley Law Group today! We’ll walk you through what to file, when to act, and how to protect the property tax benefits your family is entitled to.
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