Proposition 19 Update– You May Need to Act Fast!

Proposition 19 Update– You May Need to Act Fast!

By: Benjamin H. Eagleton, Esq.

February 9, 2021

As you may recall, Proposition 19 was approved on November 3, 2020— it passed by 347,404 votes—and it has caused a massive change to property tax laws. One big change is to the reassessment of property taxes when real estate is gifted from Parents to Children under Prop 58. The following introduces briefly how this change will affect gifting property. So, what if anything should you do before the new law goes into effect?

What is the Change? Under Good Ol’ Prop 13 (passed in 1978), a Parent was allowed to gift real estate to a child during the Parent’s lifetime or upon death, and the Child could enjoy the same property tax base value without triggering a reassessment. With Prop 19, the Child can only enjoy the same tax savings if the property is used by the Child as a Primary Residence.

Who Should Act? If you expect to gift real estate to a Child (or a Grandchild under limited circumstances), you may want to transfer that property before Prop 19 takes effect. By gifting the property during your lifetime— and more importantly before Prop 19 takes effect your child can enjoy the Prop 13 tax structure. Gifting the property during your lifetime however may not necessarily be the best option for some. For example, if you gift the property during your lifetime, your child will not receive a step-up in basis upon your death. This means that when, and if, your child does sell the property it could create a large gain tax. As well, if the property you are intending to gift is being leased-out now, by not receiving a step-up in basis your child will have a lower maximum depreciation which may mean greater income taxes paid on the rents collected.

When Should You Act? The new law goes into effect February 16, 2021— this means if you decide to gift the property before Prop 19 takes effect the transfer (meaning the Deed), the transfer must take place before that date. BUT WAIT— because of February 15th is President’s Day the County Recorder’s office will be closed. If you chose to act, you must act the Deed must be recorded on or before February 11, 2021 at 5:00 p.m.

BPE Law Group’s Estate Team routinely advises its clients on real estate transfers between Parents and Children both during life by deed and transfers on death using a Will, a Trust, and various other non-probate mechanisms. For assistance with Prop 19, and any other Estate matters, contact BPE Law Group for a consultation.

If you would like a consultation with us, please contact our office at 916-966-2260.
The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.

Recent and Popular Articles From Our Blog: