Property Taxation

By pjain      Published Feb. 5, 2021, 8:22 p.m. in blog Fin-Plan-Strategy   

Part of Tax Series Tax Planning 101 - Retirement Planning and Taxes Series

Prop 19 passed 2020

To take effect Feb 16, 2021 on.

  1. Transfer applies to any home even of greater value by blending the jump in value with original tax basis. For those property owners age 55 and older, they will be able to blend the taxable value of their old home with the value of a new, more expensive home, which will result in positive property tax savings. For example, if a senior couple sold their home with an assessed value of $250,000 for $2 million and bought a new home for $3 million, the new home’s assessed value would be $1.25 million, which is the $250,000 assessed value, plus the $1 million increase in home value.

  2. Now they can transfer basis to any other property upto THREE times. If a person is 55 years or older, has severe disabilities, or lost a home in a natural disaster, the person may transfer their tax assessment up to three times now (up from one).

  3. Before in Prop 13, transfer of basis applied to only a few CA Counties - now applies all over CA.

4a. Inheritance 1m Tax basis Limit. If a child chooses to keep the real property and use it as the child’s primary residence, then up to $1 million of the reassessed value will be excluded from the new property-tax basis. (Before, primary residences could be transferred with no cap.)

4b. So the new law also requires market-value reassessments for inherited properties that are not used as the heir’s principal residence.

4c. Secondary Home. If the child chooses to keep the property as a second home, vacation home or rental property (anything other than as the child’s primary residence), there is no $1 million exclusion and the child will face a significant increase in property taxes. Eg, if parents basis was $100k, now value of kids inherited (and kept as rental property) is say $1.5m, then they will be taxed on $1.5m not the parents' $100k.

Prop 13 passed 1978

1, Limits property rise 2% till sold by owners.

  1. For 55+ homeowners can transfer property tax basis to another property 1x. Eg sell $100k home rises to $250k, but actual market value rises to $1m. They then buy new home at $1m, their taxable property tax basis will be only $250k, not $m. But this is limited to homes of same or lesser value.

  2. Before in Prop 13, transfer of basis applied to only a few CA Counties.

  3. Inheritance is open in Prop 13, tax basis passes to heirs. Parents could transfer a primary residence to children without any new fair-market reassessment, regardless of how the children chose to use the real property. Effectively, this would allow children to avail themselves of the same property tax basis that their parents enjoyed. Additionally, any secondary property, such as a vacation home, rental property or commercial property, could be transferred with up to $1 million of the assessed value being exempt from the increase in property taxes — again, regardless of its use by the children.


There are no comments yet

Add new comment

Similar posts

Political Economy of Taxes and Inequality

Estate and Inheritance Taxes by US States

How the World's Wealthiest really got their money Greasing the Rich, Financial and Legal Systems!

Retirement Tax Planning 101