Prop 58 - Transfer Between Parent and Child
Prop 193 - Transfer from Grandparent to Grandchild
What is Proposition 58?
Proposition 58, effective November 6, 1986, is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property between parents and children. Proposition 58 is codified by section 63.1 of the Revenue and Taxation Code.
What is Proposition 193?
Proposition 193, effective March 27, 1996, is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property from grandparents to grandchildren, providing that all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer. Proposition 193 is also codified by section 63.1 of the Revenue and Taxation Code.
How do these Propositions work?
In the State of California, real property is reassessed at market value if it is sold or transferred and property taxes can sometimes increase dramatically as a result. However, if the sale or transfer is between parents and their children, or from grandparents to their grandchildren, under limited circumstances, the property will not be reassessed if certain conditions are met and the proper application is timely filed.
These propositions allow the new property owners to avoid property tax increases when acquiring property from their parents or children or from their grandparents. The new owner's taxes are calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired.
Which transfers of real property are excluded from reassessment by Propositions 58 and 193?
- Transfers of primary residences (no value limit)
- Transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.
What value of the transferred property is counted toward the $1 million exclusion limit?
The Proposition 13 value (factored base year value) just prior to the date of transfer. Usually, this is the taxable value on the assessment roll. If a property is under a Williamson Act (open space) or Mills Act (historical property) contract, it is the factored base year value that is counted, not the restricted value.
To qualify for the exclusion, must the transfer be only a result of a gift?
No. Transfers may be result of a sale, gift, or inheritance.
Will a transfer via a trust qualify for this exclusion?
Yes. For property tax purposes, we look through the trust to the present beneficial owner. When the present beneficial ownership passes from a parent to a child, this is a change in ownership that is eligible for the parent-child exclusion.
Is it always beneficial to claim this exclusion?
No. In cases where the transferred property was being assessed at its current market value under Proposition 8 at time of transfer (that is, its market value had fallen below the transferor's original Proposition 13 factored base year value), it may be beneficial for the new owner not to claim the exclusion and instead accept a new Proposition 13 base year reassessment. By doing so in this circumstance, the reassessment can result in lower property taxes over time by locking in the lower market value as the property's new base year value as of the date of transfer.
Otherwise, the higher original Proposition 13 base year value set under the transferor's ownership would someday be reinstated as market conditions improve over time and at a level higher than they would be if the property had received a new Proposition 13 base year value as of the date the property was transferred.
In any case, you may wish to consult with a real estate or estate planning expert for advice before claiming this exclusion.
Who are considered eligible children under Proposition 58?
A "child" for purposes of Proposition 58 includes:
- Any child born of the parent(s).
- Any stepchild while the relationship of stepparent and stepchild exists.
- Any son-in-law or daughter-in-law of the parent(s).
- Any adopted child who was adopted before the age of 18.
Spouses of eligible children are also eligible until divorce or, if terminated by death, until the remarriage of the surviving spouse, stepparent, or parent-in-law.
Who are considered eligible grandchildren under Proposition 193?
An eligible "grandchild" for purposes of Proposition 193 is any child of parent(s) who qualify as child(ren) of the grandparents as of the date of transfer.
Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and she was divorced from her husband (my ex-son-in-law) who is still living?
Yes. Your daughter's divorce terminated the relationship between you and your son-in-law. Since your ex-son-in-law is not considered your child for purposes of this exclusion, your grandchildren are eligible transferees of your property.
Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and her husband (grandchildren's father) has not remarried?
No. Your son-in-law is still deemed to be a "child" of yours, until he remarries, thus disqualifying your grandchildren as eligible transferees.
Is the transfer of real property to or from my family partnership eligible for the exclusions?
No. Transfers of real property must be between eligible parents and children or grandparents to grandchildren, not legal entities.
Is the transfer of real property to my grandchild's limited liability company eligible for the Proposition 193 exclusion?
No. A limited liability company is considered a legal entity, as are partnerships, and corporations. Transfers of real property must be from an eligible grandparent to an eligible grandchild/grandchildren. A legal entity, even if the legal entity is wholly owned by the grandchildren, is not an eligible transferee.
I recently inherited the family home, but I don't really want to live there. Do I have to make it my principal residence to qualify for the exclusion?
No. The property need not be the new principal residence of the person that acquired the property. It is only the transferor who must have been granted a homeowners' exemption or disabled veterans' exemption on the property before the transfer.
Is there a limit placed on my principal residence's assessed value that may be excluded from reassessment?
No. The $1 million limit applies only if the property was not granted a homeowners' exemption or disabled veterans' exemption before the transfer.
What are the time filing requirements of Propositions 58 and 193?
Generally, to get relief retroactive to the date of transfer, a claim must be filed with the county assessor's office by the earliest of the following:
- Within three years of the transfer
- Prior to transferring to a third party
- If a notice of supplemental or escape assessment is mailed after the deadline for either of these periods has passed, then the transferee has an additional six months from the date of the notice to file a claim. For example, if a taxpayer received a Notice of Supplemental Assessment for a parent-child transfer dated January 1, 2003, and then received a Notice of Proposed Escape Assessment dated April 1, 2006, the taxpayer would have six months from April 1, 2006 to file a claim with the assessor.
If you have any questions, please contact our office.