Inheriting property in CA may mean a big tax hike

Just my opinion…??????????????????????????????????????????????????????????????????????????????????????????????????????????????

Proposition 19 has several provisions that are beneficial to seniors and wildfire victims but it deals a devastating blow to the ability of middle income and working families to build generational wealth – a hallmark of the American dream.?Proposition 19 has a little-known provision in it that causes a reassessment of property taxes on California real estate when passed from parent to child unless the child moves into the parent’s primary residence.?In prior years, families passed down property from one generation to the next without a property tax reassessment allowing younger generations to keep long held property in their family.?Now thanks to Proposition 19 families who have acquired and maintained highly appreciated real estate will suffer in some cases a massive reassessment of property taxes simply because the parent left their property to their child after February 15, 2021.?In the event that the child is not able to afford the significant increase in property taxes they will be forced to sell their family property and California will prosper rather than future generations of that family.

Proponents claim that Proposition 19 was meant to prevent extremely wealthy taxpayers from passing property from one generation to the next without any incentive to turn the property over.?An often noted example is Jeff Bridges’ family property in Malibu which has a very low property tax basis and has been passed down for many years.?While I personally don’t have a problem with wealthy families maintaining their wealth by passing property down to future generations, if Proposition 19 was truly meant to punish only the wealthiest families then it should have been written with an ample exclusion for us ordinary folks.?Rather, any parent that owns California real estate, that dies after February 15, 2021, whose children do not want to relocate and live in their parent’s primary residence, will suffer a significant reassessment of property taxes as of the date of the applicable death.?If the child, who is likely a young or full-grown adult at the time, leaves their home and moves into their parent’s primary residence (ha, pretty unlikely but possible) then they will be allowed to exclude an additional $1,000,000 from re-assessment.*

Now I am sure this brief summary of Proposition 19 leaves you with a lot of natural questions like, how long does a child have to live in their parent’s home in order to escape re-assessment??What if the parents are divorced and now have two primary residences can their children move into both of their parent’s primary residences and exclude $1,000,000 per home from being re-assessed; ??Are there any estate planning vehicles that can be employed to avoid re-assessment after February 15th??What if the property is held in a living trust (according to the LA County Assessor last week, a living trust does not exempt the property from re-assessment if the house is passed from parent to child).?The truth is we will have to wait and watch this law evolve before many practical questions will be answered.?For now, consult with your trust attorney, accountant and family members.?Establish a strategy that will allow you to preserve as much of your estate as possible through careful planning.

*This top-level opinion piece should not be mistaken for legal advice, tax advice or estate/trust planning – however I hope it gives deserving families an opportunity to plan for increased costs of carrying certain real estate.?You should seek the advice of an attorney, accountant or CPA for your unique situation.?Call Teresa Mack for all real estate questions – Teresa Mack, Pacific Playa Realty, CA DRE No. 01898459/01766118 cell: 323-377-9379 TeresaMack.com.

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Teresa Mack is a Broker and top producing real estate professional in Los Angeles, CA where she manages a 70-agent brokerage, Pacific Playa Realty.?She is the lead trainer on best practices for the brokerage and she mentors agents at various stages of experience in the industry.?Known as a Realtor that educates and advocates for her client’s best interest and their financial well-being, Teresa is a former CPA and attorney and is a California Broker with membership in the National and California Associations of Realtors.?For more information visit her website at TeresaMack.com or contact her directly at (323) 377-9379.