Real property owners are assessed property taxes annually by the County in which the property is located. Unlike residents of some other states, Californians are privileged to have several favorable rules regarding property taxes. The biggest advantage is Proposition 13 – the initiative passed by voters in 1978 to keep people from being priced out of their homes by runaway property taxes. Under Proposition 13, the annual real estate tax on a parcel of residential property is limited to 1% of its “assessed value”. This assessed value, approximately 20% of the fair market value, may only be increased by a maximum of 2% per year as long as there is no change of ownership. For people who bought their homes in the last 20 years before property doubled or tripled in value, their property taxes are relatively low, and care must be taken to preserve this low property tax rate.
Under Proposition 19, which took effect February 16, 2021, all property held by the parent will be reassessed when a parent dies. We are now seeing catastrophic impact on those who inherit income properties because of a substantial increase in the property taxes which affects the bottom-line profitability of continuing to hold the income property. A few are able to pass the extra costs on to the tenants; however, more and more jurisdictions are enacting rent control ordinances that restrict how much rent can increase. While all income property will be reassessed, there is a limited exemption from reassessment when the property owner leaves his or her home to a child or children. Under Proposition 19 the parent-child exclusion applies for the transfer of a parent’s principal residence to a child only if the child uses it as his or her principal residence. If there is more than one child that inherits the property, at least one must live there. The exclusion is limited to the house’s assessed value plus one million dollars. The assessed value is often far less than the fair market value, so it is easy to reach the limit in today’s high-priced real estate market. To take advantage of the parent-child exclusion, two important documents must be timely filed with the Assessor’s office. A Claim for Homeowner’s Property Tax Exemption must be filed within one year of the parent’s death. In addition, a Claim for Reassessment Exclusion for Transfer Between Parent and Child must be filed within three years of the parent’s death or before the property is transferred to a third party. Forms and further information are available on the County Assessor’s website. © 2023 by Marlene S. Cooper. All rights reserved. (You may obtain further information at the website www.marlenecooperlaw.com, by e-mail at MarleneCooperLaw@gmail.com, by phone at (626) 791-7530 or toll free at (866) 702-7600. The information in this article is of a general nature and not intended as legal advice. Seek the advice of an attorney before acting or relying upon any information in this article). |
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