Lorraine D. Evans, CPA, MST

If you want to be aware of, plan for, and possibly benefit from any of these exceptions read on!

In California, real property (or real estate) is reassessed at MARKET VALUE if it is sold or transferred. This can cause a dramatic increase in the amount of property taxes assessed! There are five exceptions that you may be able to utilize to transfer your property tax base between properties here in California. They include: Proposition 13, Proposition 58, Proposition 193, Proposition 60, and Proposition 90. 

It all began in the late 1970's with the passage of Proposition 13. As you may recall, this legislation was passed by taxpayers to effectively FREEZE property tax values based on the purchase price of the property. Under Prop 13, taxes are based on 100% of the assessed value of the property at the time of purchase, and annual increases are limited to the lesser of 2% or the annual rate of inflation.

Under this Proposition, taxes are reassessed each time a property is sold.

The first set of exclusions to be aware of are those transferring property within the family unit. Proposition 58, effective November 6, 1986 was voter approved and excludes from reassessment transfers of real property between parents and children. This applies to your primary residence, with no value limits, and to the first $1million of real property other than primary residences. The $1million exclusion applies separately to EACH eligible transferor.

Who is considered a child for purposes of Prop 58? Any child born of the parents, any stepchild while the relationship of stepchild and stepparent exists, any son-in-law or daughter-in-law of the parents, and any adopted child who was adopted before the age of 18. Spouses of eligible children are also eligible until divorce, death or remarriage.

Proposition 193 effective March 27, 1996 extends the treatment of Prop 58 to grandchildren and grandparents, when ALL the parents of the grandchildren who qualify as children of the grandparents are deceased.

You will want to determine if it is beneficial to claim these exclusions.

The second set of exclusions applies to elder homeowners. Often in retirement, seniors are on a fixed income. They may have enough equity in their homes to sell and buy a smaller retirement home, or move closer to family. The prospect of having to pay property taxes significantly more than what they paid on the home they lived in for so many years oftentimes prevented them from moving.

Proposition 60, passed in 1986, allows homeowners at least 55 years old to transfer their existing property tax base to a NEW home within the SAME COUNTY purchased for a price EQUAL TO OR LESS THAN the sales price of the home they are vacating. This exception is only available ONCE! It is also available ONLY for the primary residence.

Proposition 90, passed in 1988, expands Prop 60 and allows counties in California the OPTION of allowing seniors who move from other counties, to bring their tax base with them to the county of their new home. They must meet all of the requirements of Prop 60, and the new county must have signed onto the agreement. As of September 19, 2013 the following nine counties are participating: Alameda, El Dorado, Los Angeles, Orange, Riverside, San Diego, San Mateo, Santa Clara and Ventura. You should ALWAYS contact the Assessor's office in the county to which you wish to move to verify eligibility.

On June 5, 1990, voters once again expanded on Props 60 and 90. They wished to extend the exclusion to severely and permanently disabled persons. You must provide proof and file a claim with the assessor who will determine if you qualify. Appropriate proof is a certificate signed by a licensed physician or surgeon. Interestingly enough, you may qualify for this exclusion, AND the exclusion under Prop 60 or 90, therefore allowing TWO exclusions.

Oftentimes real property is transferred into LLC's and trusts. Be very careful when doing this. Most of the time transfers TO entities that do NOT result in a change in the beneficial ownership interest will NOT trigger reassessment. But it could cause reassessment when the interest of the LLC is given by gift or inheritance. The exclusions only apply to transfers of real property, NOT to interests in an entity!

Transfers to a revocable living trust also will not trigger reassessment, nor will a transfer to a spouse. Transfers involving irrevocable trusts and wills get a little more complicated, and consulting a good estate planning attorney is highly advised.

In summary, when selling and purchasing real property in California, be aware of the property tax assessment implications. Make sure to determine if any of the exceptions apply to you, and if it is beneficial to do so. You can go to the California Sate Board of Equalization's website for additional information. you can also ask your realtor, as most are quite informed and stay up to date on these issues. Attorneys and CPA's are also available to discuss these types of matters with you.

Lorraine D. Evans, CPA MST

CA CPA License #49570E
1540 Eureka Rd., Suite 104
Roseville, CA 95661
(916) 246-CPA's (2727)