Prop 19 Property Tax Impact in California

What Is Proposition 19?

Proposition 19, passed by California voters in November 2020 and effective February 16, 2021, significantly changed California's property tax reassessment rules for inherited property. Before Prop 19, children could inherit a parent's home and keep the parent's low property tax base — regardless of whether they lived in the home or how valuable it was. Prop 19 eliminated this broad exclusion and replaced it with a much narrower exclusion that only applies if the child uses the inherited property as their primary residence.

Parent-Child Transfer Rules

Under Prop 19, a child who inherits a parent's primary residence can keep the parent's property tax base only if: (1) the child uses the property as their primary residence, and (2) the property's fair market value does not exceed the parent's assessed value plus $1 million. If the fair market value exceeds the assessed value by more than $1 million, the child's assessed value is the fair market value minus $1 million. If the child does not use the property as their primary residence, the property is fully reassessed at fair market value.

Grandparent-Grandchild Transfers

Prop 19 also allows grandparent-to-grandchild transfers to qualify for the exclusion, but only if both parents of the grandchild are deceased at the time of the transfer. The same primary residence and $1 million cap rules apply.

Primary Residence Requirement

The child must file a homeowner's exemption claim with the county assessor within one year of the transfer to establish the property as their primary residence. If the child does not file within one year, the property is reassessed at fair market value. The child must continue to use the property as their primary residence to maintain the exclusion — if they move out, the exclusion is lost and the property is reassessed.

Property Tax Impact

The property tax impact of Prop 19 can be substantial. A California home purchased for $200,000 in 1990 might have an assessed value of $350,000 (after Prop 13 increases) but a fair market value of $1.5 million. Under the old rules, a child could inherit the home and keep the $350,000 assessed value — paying property taxes of approximately $4,375 per year. Under Prop 19, if the child does not live in the home, the assessed value jumps to $1.5 million — property taxes of approximately $18,750 per year. This is a $14,375 annual increase in property taxes.

Planning Strategies Under Prop 19

KDA's Prop 19 planning strategies: (1) Transfer during lifetime — transferring the property to children before death may avoid reassessment, but this has gift tax and income tax implications (the child loses the step-up in basis). (2) Irrevocable trust — certain irrevocable trust structures may preserve the property tax base, but the rules are complex and require careful analysis. (3) LLCS and entities — transferring property to an LLC may change the reassessment analysis, but this also has significant tax and legal implications. (4) Sell and reinvest — if the property will be fully reassessed anyway, selling and reinvesting the proceeds may be more tax-efficient. KDA analyzes the specific facts of each situation to recommend the optimal strategy.