Most Californians known about the famous “Prop 13.” Just google “Prop 13″ without specifying California and it will come up very high in your search I am sure! It’s the 1978 statewide proposition that established California’s modern day property tax system. It set a ceiling on property tax based on your assessed value in 1975 (a 1% tax on that value) and allowed for increases of up to 2% a year. Of course value increased a lot more than 2% a year in many years since 1975! Thus there are people with multi-million dollar homes paying $800 a year in tax. The biggest problem comes up when a person dies and their child (or grandchild) wants to continue living in that multi-million dollar home but can’t even afford the property tax if they were paying what their neighbors were paying.
I should state that this law benefits a lot of people with less than multi-million dollar homes and the above is merely to show the reader how the law works in an extreme example.
The problem at death is that mom and dad may be paying $800 a year but if daughter wants to keep living in that house her property tax should be $800 a month… or MORE! Thus, in 1986 they came up with the PARENT TO CHILD EXCLUSION. In simple terms this allows a parent to pass their property tax basis to their child. This is totally separate from income, estate and gift taxes which are discussed in other posts. In the case of property taxes the goal is to pass on the same property tax base so that the child can continue paying the low property taxes.
The law was written so that a parent can pass their primary residence (amazing how many beach front properties become “primary residences” shortly before death) AND $1,000,000 of other property, at the assessed value, to the child without change in property tax. Again, this has absolutely nothing to do with income, gift or estate tax so don’t confuse them. This is strictly limited to California property taxes. Of course, property taxes are annual so if the child is planning to keep mom’s house this is a very important tax to plan for!
In simple transfers the key is filing the proper form (PS-58) within 3 years of death (or transfer if done before death). However, many counties now impose a fee if you don’t file within a certain number of days after receiving the notice from the county assessor.
The key here is this is a complex tax system and the tax hungry state government is looking carefully at every real estate transfer for a slip-up. Thus it is imperative that you work with a qualified California probate and estate planning attorney who understands the California property tax system and the complexity created by prop 13, prop 58 and prop 193 among other things.
Contact me with your California real property questions! -John