What is California Prop 19?
Have you recently inherited property in Los Angeles California? Understanding how to navigate property taxes post California Prop 19 is crucial to the overall financial well being of and planning for your property inheritance. Many, including out of state heirs, are unaware of the impact Prop 19 has on property taxes for inherited property in California or are unclear on the necessary steps to take after their inheritance.
Proposition 19, also referred to as The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act was a California ballot measure approved by voters in November 2020.
It consists of two main provisions:
1. Property Tax Portability: Proposition 19 allows homeowners who are over 55 years old, severely disabled, or victims of wildfires or natural disasters to transfer the taxable value of their primary residence to a replacement residence anywhere in California. This can be done up to three times, regardless of the value of the replacement property or its location within the State. Prior to Prop 19, this benefit was limited to certain counties or was a one time only transfer.
2. Inheritance Tax Reassessment Exclusions: Proposition 19 narrows the inheritance tax reassessment exclusions for inherited properties in California. Under Prop 19, inherited properties that are not used as a child’s (and in some instances grandchild’s) primary residence or farm may incur a property tax reassessment. Heirs who use the inherited property as their primary residence and claim the homeowner exemption may be eligible for a reassessment exclusion, allowing them to retain the property tax base of the original owner.
Impact on Inherited Property in Los Angeles
Under Proposition 19, if a child chooses not to use a property inherited from their parents as their primary residence within one year, the property tax base may be reassessed to correspond with the property’s current market value. These changes to inherited property tax reassessment rules could lead to higher property tax bills for some heirs, especially if they inherit properties they do not claim as their primary residence. Property tax exclusions are subject to some upward adjustments if the property value, at the time of transfer is more than $1,000,000 (one million dollars) above the original tax base.
The CA State Board of Equalization uses the following example :
“A family home has a factored base year value (FBYV) of $300,000 and a fair market value of $1,500,000. The excluded amount under Proposition 19 is $1,300,000 ($300,000 plus $1,000,000 equals $1,300,000). The difference of $200,000 ($1,500,000 minus $300,000 equals $200,000) is added to the property’s factored base year value (FBYV). Thus, the adjusted base year value is $500,000 (FBYV $300,000 plus the difference of $200,000).”
Why is this important? This could pose financial challenges for those inheriting rental properties, investment properties, vacation homes, and homes the heirs will not use as their primary residence. Prior to the passing of Prop 19, property tax reassessments were not triggered for inherited property in Los Angeles California, even if the child chose to use the inherited property as a rental property. This allowed children to keep their parent’s property tax base without triggering a property tax reassessment, resulting in a significant property tax savings for the heirs.
Let’s look at a real life example to illustrate the impact of Prop 19 on today’s property heirs:
Our clients inherited their parent’s home in Los Angeles California, first purchased in 1967. Prior to their inheritance, the annual property taxes were $1,654.18. Our clients lived out of state and did not intend to move into the inherited property. The property taxes for the inherited property were estimated to increase to $20,000 annually based on the current market value of the home minus the $1,000,000 allowed by Prop 19. If they chose to keep the home and lease it as an investment property, over $1,600 per month of the collected monthly rent would be allocated towards the annual property tax bill. Prior to Prop 19, our clients would have kept the lower property tax base after their inheritance. However, post Prop 19, the property tax reassessment was crucial to consider when deciding whether to sell or keep the inherited family home. Given the estimated new property tax assessment, our clients chose to sell their family home within a year of their inheritance.
Prop 19 Resources
If you have inherited or will soon inherit property in Los Angeles California, the following resources are helpful for those deciding how to navigate their property inheritance or preparing for Probate and Trust Property Sales.
The California State Board of Equalization provides general information regarding Proposition 19 including comparison charts regarding the effects of Prop 19, related legislation, frequently asked questions, and filing requirements.
The LA County Tax Assessor provides information regarding the Homeowner Exemption.
The California Association of Realtors offers information and FAQs regarding Prop 19 and Intergenerational Transfers.
To learn more about the inherited property in Los Angeles elevated client experience and services we provide, visit our Probate and Trust Sale Resources. We are Certified Probate and Trust Sale Specialists and are passionate about delivering elevated client experiences with transparency, compassion, and expertise.
Proposition 19 is complex. We always recommend seeking legal counsel from an experienced attorney prior to deciding on a course of action for your inherited property. As a result of our commitment to serve those who are downsizing or navigating Probate and Trust Sales, we are acquainted with top rated Probate, Trust, and Estate Planning Attorneys and are happy to facilitate introductions.
Proposition 19 represents a significant shift in California’s property tax landscape and impacts inherited property in Los Angeles. It aims to address housing affordability, wildfire response, and local government funding challenges. While it offers benefits such as increased housing mobility and additional funding for wildfire agencies and counties, it also introduces complexities and potential drawbacks regarding property tax reassessment rules for inherited properties.
As Californians navigate these changes, it’s essential to stay informed about how Proposition 19 impacts your individual circumstances and to seek professional guidance when making decisions related to property ownership, inheritance, and taxation.
Inherited Property in Los Angeles Prop 19 Next Steps
If you’ve decided to move into your inherited property in Los Angeles and claim it as your primary residence, consider taking these next steps to preserve the original property tax base within a year of the change of ownership. The date of death is considered to be the date of the change of ownership. It is important to take the necessary action within the first year after the death of your loved one.
1. Familiarize yourself with Proposition 19 requirements, deadlines, forms, and FAQs.
2. Consult with an experienced attorney regarding the next steps and discuss the pros and cons.
3. Consult with a tax professional to obtain a solid understanding of any potential tax implications a change in primary residence may trigger.
4. Apply for your Homeowners Exemption, form BOE-266/ASSR-515, Claim for Homeowners’ Property Tax Exemption. The California Constitution allows for a $7,000 reduction in the taxable value for a qualifying owner-occupied home with additional date requirements that must be met. Form BOE-266/ASSR-515 and additional Homeowner Exemption FAQs can be found on the LA County Tax Assessor Website.
5. Call the State Board of Equalization’s Property Tax Department, County-Assessed Properties Division at 916-274-3350 if you have additional questions regarding your inherited property in Los Angeles.
If you live out of the State of California, or live locally, but have decided not to claim the inherited property as your primary residence and have questions regarding the pros and cons of keeping or selling the home, contact us at 424-421-2451 for a zero pressure complementary consultation. We will provide a comprehensive market evaluation as well as a detailed overview of the Probate or Trust Sale Process, depending on your specific situation.
Selling Your Inherited Property in Los Angeles
If you have recently inherited property in the Greater Los Angeles area, or are planning for an inheritance, Proposition 19 is one of the many important items to consider when deciding how to best move forward post inheritance. The most often asked question we hear from our clients making decisions about their inherited property in Los Angeles is “should they sell the home and take the proceeds or keep the home as an investment property?”. Prop 19 is certainly one factor of which to be aware, but there are many other considerations to discuss when deciding when to sell an inherited property in Los Angeles.
Call or text us at 424-421-2451 to discuss next steps for your inherited Los Angeles property and for a complementary copy of our Los Angeles Inherited Property Checklist.
***Disclaimer*** We are not legal or tax professionals and cannot give legal or tax advice. We recommend consulting with the appropriate legal and tax professionals regarding the impacts of Proposition 19 on your inherited property in Los Angeles and the intricacies of intergenerational property transfers.
