The property-tax basis of your primary residence and other properties can be transferred to your children, or in some cases, your grandchildren:
What are Propositions 58 and 193?
Proposition 58, effective November 6, 1986, is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property between parents and children. Proposition 58 is codified by section 63.1 of the Revenue and Taxation Code.
Proposition 193, effective March 27, 1996, is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property from grandparents to grandchildren, providing that all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer. Proposition 193 is also codified by section 63.1 of the Revenue and Taxation Code.
In the State of California, real property is reassessed at market value if it is sold or transferred and property taxes can sometimes increase dramatically as a result.
However, if the sale or transfer is between parents and their children, or from grandparents to their grandchildren, under limited circumstances, the property will not be reassessed if certain conditions are met and the proper application is timely filed.
These propositions allow the new property owners to avoid property tax increases when acquiring property from their parents or children or from their grandparents. The new owner’s taxes are calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired.
Which transfers of real property are excluded from reassessment by Propositions 58 and 193?
- Transfers of primary residences (no value limit).
- Transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.
- Transfers may be result of a sale, gift, or inheritance. A transfer via a trust also qualifies for this exclusion. For property tax purposes, we look through the trust to the present beneficial owner. When the present beneficial ownership passes from a parent to a child, this is a change in ownership that is eligible for the parent-child exclusion.
What value of the transferred property is counted toward the $1 million exclusion limit?
The Proposition 13 value (factored base year value) just prior to the date of transfer. Usually, this is the taxable value on the assessment roll. If a property is under a Williamson Act (open space) or Mills Act (historical property) contract, it is the factored base year value that is counted, not the restricted value.
Is it always beneficial to claim this exclusion?
No. In cases where the transferred property was being assessed at its current market value under Proposition 8 at time of transfer (that is, its market value had fallen below the transferor’s original Proposition 13 factored base year value), it may be beneficial for the new owner not to claim the exemption and instead accept a new Proposition 13 base year reassessment. By doing so in this circumstance, the reassessment can result in lower property taxes over time by locking in the lower market value as the property’s new base year value as of the date of transfer.
Otherwise, the higher original Proposition 13 base year value set under the transferor’s ownership would someday be reinstated as market conditions improve over time and at a level higher than they would be if the property had received a new Proposition 13 base year value as of the date the property was transferred.
In any case, you may wish to consult with a real estate or estate planning expert for advice before claiming this exclusion.
Who are considered eligible children under Proposition 58 and grandchildren under Proposition 193?
- A “child” for purposes of Proposition 58 includes:
- Any child born of the parent(s).
- Any stepchild while the relationship of stepparent and stepchild exists.
- Any son-in-law or daughter-in-law of the parent(s).
- Any adopted child who was adopted before the age of 18.
- Spouses of eligible children are also eligible until divorce or, if terminated by death, until the remarriage of the surviving spouse, stepparent, or parent-in-law.
- An eligible “grandchild” for purposes of Proposition 193 is any child of parent(s) who qualify as child(ren) of the grandparents as of the date of transfer.
Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and she was divorced from her husband (my ex-son-in-law) who is still living?
Yes. Your daughter’s divorce terminated the relationship between you and your son-in-law. Since your ex-son-in-law is not considered your child for purposes of this exclusion, your grandchildren are eligible transferees of your property.
Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and her husband (grandchildren’s father) has not remarried?
No. Your son-in-law is still deemed to be a “child” of yours, until he remarries, thus disqualifying your grandchildren as eligible transferees.
I want to give my second home to my grandson, but his father, my son, is still alive. Can my son file a disclaimer so that my grandson is eligible for the grandparent-grandchild exclusion?
No. Even though a disclaimer means the person filing the disclaimer is treated as predeceased, this does not make the person dead as required by the California Constitution.
I’m thinking of giving several rental properties to my children. Can I decide which child gets the exclusion?
The property that transferred first, for which a claim was filed, will get the exclusion. Thereafter, other properties may also receive the exclusion as long as the cumulative factored base year value of the properties excluded has not exceeded $1 million for each transferor.
My father’s property was in a trust. The assessor asked for a copy of the trust. Can I provide a certification of trust in lieu of the trust documents?
A certification of trust is not sufficient evidence upon which to make a determination of eligibility for the parent-child exclusion if it does not identify the beneficiaries or their interests in the property held in trust. An assessor may require a claimant for the exclusion to either submit the trust instrument or copies of portions of the instrument that identify the beneficiaries and their interests, enumerate the powers of the trustee, and set forth other relevant terms regarding the disposition of the trust property and assets, as a condition of processing and granting the exclusion.
Is the transfer of real property to or from my family partnership eligible for the exclusions?
No. Transfers of real property must be between eligible parents and children or grandparents to grandchildren, not legal entities.
A limited liability company is considered a legal entity, as are partnerships, and corporations. Transfers of real property must be from an eligible grandparent to an eligible grandchild/grandchildren. A legal entity, even if the legal entity is wholly owned by the grandchildren, is not an eligible transferee.
I have raised my two stepchildren alone since their mother, my wife, died ten years ago. Now that the children are grown adults, their grandparents wish to gift a piece of bare land to them. Can this transfer be sheltered from reappraisal under Proposition 193?
Yes, assuming the other conditions are met and a proper claim is filed. For transfers occurring on or after January 1, 2006, it is not necessary that the son-in-law or daughter-in-law who is stepparent to the grandchild be deceased in order for the grandchild to be eligible transferees.
I am over 55 and planning on selling my long-time residence to my child. Can my child benefit from the parent-child exclusion and can I also transfer my base year value (Proposition 60) when I purchase a replacement property?
No. You must choose which exclusion you wish to apply your base year value. If you sell the property to your child and choose to transfer your base year value using the parent-child exclusion, then the base year value is no longer yours to transfer to a replacement property.
Is there a limit placed on my principal residence’s assessed value that may be excluded from reassessment?
No. The $1 million limit applies only if the property was not eligible for a homeowners’ exemption or disabled veterans’ exemption before the transfer. If you did not have the homeowners’ or disabled veterans’ exemption on your principal residence prior to the parent-child transfer, then you may have to provide evidence to the assessor that the property was your principal residence. Evidence includes voter registration, vehicle registration, bank accounts, or income tax returns.
What are the time filing requirements of Propositions 58 and 193?
Generally, to get relief retroactive to the date of transfer, a claim must be filed with the county assessor’s office by the earliest of the following:
- Within three years of the transfer
- Prior to transferring to a third party
If a notice of supplemental or escape assessment is mailed after the deadline for either of these periods has passed, then the transferee has an additional six months from the date of the notice to file a claim. For example, if a taxpayer received a Notice of Supplemental Assessment for a parent-child transfer dated January 1, 2003, and then received a Notice of Proposed Escape Assessment dated April 1, 2006, the taxpayer would have six months from April 1, 2006 to file a claim with the assessor.