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 Member Update
DON’T BE CAUGHT
CRYING THE PROP 19
BLUES IN 2021...
IBy Gina Guadio-Grace, Platinum Trust Group
n November 2020, Californian voters passed Proposition 19, a State Constitutional Amendment, with 51.1% of the voters approving it. The new law goes into effect on February 16, 2021. This means that you have a short window of time to act under the existing law.
THE WAY WE WERE: HOW IT WORKS TODAY
To understand the impact Proposition 19 will have on apartment owners, it is helpful to recognize that it modifies Proposition 13 (originally passed in 1978). Under Proposition 13, parents are permitted to transfer: (i) their primary residence, and (ii) up to $1 million in assessed value of other properties, to their children without triggering a reassessment for property tax purposes. This means that children can keep the low property tax assessment from their parents following a transfer of a primary residence or the first one million dollars of assessed value (which is usually substantially less than fair market value) of investment properties.
These same rules also apply if a grandparent transfers to a grandchild, provided the grandchild’s parents are deceased. Under Proposition 13, people over the age of 55 and people who are severely disabled can sell a primary residence and purchase a property of equal or lesser value and receive the same low property tax assessment they originally had in the property sold, provided however that the new property is in the same county as the original property.
WHAT’S CHANGED WITH PROPOSITION 19?
Proposition 19 has changed these rules in several ways. First, the exemption from reassessment for up to $1,000,000 in assessed value of property other than a primary residence transferred from parent to child or grandparent to grandchild will vanish completely. Second, while parents can still transfer their primary residence to their children, their children will only receive the lower assessed value if
they utilize the property as their primary residence. Furthermore, if the property’s fair market value at the time of the transfer exceeds the parent’s assessed value by more than $1 million, the property will be partially reassessed. In other words, the passage of Proposition 19 is a huge property tax increase being placed on our descendants.
So, under Proposition 19, if a parent chooses to transfer their primary residence to their children during the parent’s lifetime, the children only enjoy the lower property taxes if they move into the home with their parents! This may not be practical, feasible, or desirable for many adult children who have families of their own to think of, or who have jobs in other areas away from their parents or even other states.
BE CAREFUL: MIND YOUR CAPITAL GAINS TAXES
Some lawyers are advising clients to rush into transfers of primary residences and up to $1 million in assessed value of other real estate before the current Proposition 13 law vanishes entirely on February 15, 2021. While this solution preserves the lower property tax rate for the child receiving the property, it could create another issue for the child. If a parent transfers a property to a child at the time of the parent’s passing (whether through a Will or a Trust), the child receives a step-up in basis automatically. But if the parent makes an “inter vivos gift” to the child during the parent’s lifetime, the child will receive the real estate at the parent’s original basis.
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JANUARY 2021 • WWW.AAGLA.ORG
 
















































































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