Questions regarding Proposition 19 make up a very large portion of the calls we have been receiving in our office.
As you know, our office specializes in preparing and electronically recording deeds to avoid property tax reassessment.
The elimination of the parent/child reassessment exclusion is one of the major changes that takes place when Proposition 19 goes into effect on February 16, 2021.
This presentation will give you some information regarding Proposition 19 to help you and your clients.
To watch the video, please click on the word “video” or the link in the title of this post. Please share this video link with anyone you feel would benefit from it or would like more information regarding Proposition 19.
Following is some information to help you answer those questions.
Proposition 19 does make it more difficult for children that inherit property from their parents to keep the same annual property tax base (unless that property is their primary residence and even then there is a cap on the value/tax savings), but passing a property to heirs in a trust allows them to inherit the property with a step-up in basis (which means no capital gains if/when the property is sold).
Below are some options to avoid Proposition 19:
1) The parent(s) can transfer the property to their child today and the child will get to maintain the low property taxes. This will keep the property taxes low for the child but will not pass on to any grandchildren.
The downside to Option 1 is that if and when the property is ever sold, capital gains will need to be paid on the sale. If you go with Option 2, below, there will be no capital gains for the child.
2) Forget about Proposition 19 and allow the child to inherit the property through a living trust (we can help you set this up if you don’t have one). The child will get an increase in property taxes but if he/she sells the property they do not have to pay any capital gains tax on the value of the property on the date of the parents’ death.
These options really depend on what the child intends to do with the property once it is inherited- sell or keep as a rental/second home. You also have to weigh the cost of increased property taxes versus paying what could potentially be a very large amount in capital gains. Please carefully review your options and, if possible, discuss these options with an attorney or CPA.
If you are ready to move forward with the preparation of your documents please contact us.