Avoid CA Property Tax Reassessment When Transferring Between Parent and Child

property taxCA Property Tax Reassessment can be avoided when transferring property and title between parent and child.

There are ways of avoiding CA property tax reassessments that every homeowner should know about and consider.

California property taxesThe property tax rate imposed on California homeowners is equal to 1% to 1.25% of the property’s assessed value at the time of purchase.  The assessed value is equal to the current market value of the property as of the date there is a change in ownership, plus a yearly increase in value based on inflation.

Proposition 13 mandates that the yearly increase does not exceed 2% of the prior year’s assessed value.

However, that assessed value may also increase upon completion of new construction and that is why building permits trigger the tax assessor’s interest.

The key to avoiding property tax increases is to avoid a change in ownership and assessment.

If you must transfer ownership or sell the property, make sure your transfer or sale qualifies for one of the exclusions from reassessment.

If you are inheriting a home from your parent, you want to make sure you take full advantage of certain exclusions to retain your parent’s low property tax basis.

California Proposition 58 – Transfer between Parent and Child

It is common that a deceased parent might have bought a home 30 years ago for $100,000 then, 30 years later, when the parent dies the child receives a $1,000,000 home.

Does the child pay the property tax based on the original $100,000 assessment or on the current value of $1,000,000?

Proposition 58 allows the child to retain the old property tax basis of $100,000!  This is of real importance and represents thousands of dollars in savings in property taxes each year.

These are the important requirements of Proposition 58:

The person doing the transfer, who can only be the parent or the child, must own the home.  Either the parent owns the home and is giving it to the child or the child owns the home and is giving it to the parent.

Proposition 58 only applies to a transfer between parent and child.  The person receiving the home must be the parent or the child.  Under Proposition 58, a “child” may be a son, daughter, son-in-law, daughter-in-law, stepchild, or child adopted before the age of 18.

The exclusion is not automatic, and the claimant must complete a “Claim for Reassessment Exclusion for Transfer between Parent to Child” form within 3 years of the transfer.  There is no dollar limitation on the original owner’s principal residence.  The parent’s home could be worth 5 million dollars at the date of transfer, but if the parent bought the home for $100,000 then the child’s property tax basis will be $100,000.

There is a $1 million base-year cumulative value limit on the transfer of non-principal residences.  Multiple non-principal properties may be transferred without property tax reassessment only up to this limit.

By Harrison K. Long, Professional real estate representative, Realtor and real estate broker.  CALBRE 01410855.  Also an attorney member of the California State Bar Assiociaion, member 69137.  949-701-2515 (cell or text).  HKLong@cox.net.  

This is for information only about “Avoid CA Property Tax Reassessment When Transferring Between Parent and Child” and is not the providing of legal services.  If you have questions about this and your situation, you should contact an experienced real estate attorney.

About Harrison K. Long

Professional real estate representative, Realtor, Broker associate, Evergreen Realty HomeSmart, Irvine and Orange County, CA. Real estate broker, CALBRE #01410855. Providing value and helping property owners, real estate investors, trustees, executors and administrators, fiduciaries, bankers, investor group managers, with listing and sale of properties and best decisions about homes and real estate - Orange County Association of REALTORs, member and prior service on board of directors from 2012-2014; California Association of Realtors, member and now serving on its board of directors; National Association of Realtors - Also an attorney member of the California State Bar Association #69137 - Contact by telephone or text at 949-701-2515.
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