Prop 19 and Property Taxes in California for Inherited Property

[Owen Schwaegerle]

In November, Proposition 19 passed in California. This Proposition changes the way Prop 13 works, the monumental proposition from 1978 which fixed property taxes in California to 1% of the purchase price plus inflation every year. Essentially, this proposition allows seniors, victims of natural disasters, and disabled individuals the ability to transfer their property tax basis anywhere in the state. This means that many elderly people who could not afford to move due to their property taxes increasing when they buy a new home will now be able to bring their old tax basis with them to a new home in California. With this in mind, the individuals protected by this proposition may be more interested in moving, which will help free up some of the inventory and give buyers more options when it comes to purchasing a home.

At first it seems like a good idea... till you get to the part where they increase property taxes. Prop 19 gets rid of the parent-child exclusion in a huge way that will hurt long term real estate investors. Any inherited investment property will be reassessed to current market value rather than inheriting the tax basis from when the property was originally purchased. This means that people who inherit investment property will have to pay more in property taxes, typically a lot more. 

 There are a lot less exclusions in Prop 19 than in the old Prop 58 which created the parent-child exclusion. In the example in this article, a girl who received an inherited primary residence and one investment property from her family had the total property tax bill go from $12,500/year under the old rules to $62,500/year under the new rules. That is an extremely high jump! How can that girl expect to hold on to her family property under those circumstances? 

My question today is: how can people who invest in real estate in California structure property transfers to their heirs to avoid massive reassessments like in the example above? What can people do to preserve their family assets, land, and investment property?

[Deanne Bourne]

@Katie L. katie I have been looking for a tax attorney/CPA . Can we schedule a meeting about my portfolio on Zoom ? Are you a real estate investor in any state?   Deanne Bourne