An inherited property may be considered an original home for purposes of the Proposition 19 base year value transfer, as long as you own and occupy the home as a principal residence either at the time of sale or within two years of the purchase or new construction of your replacement home.
Use the Principal Residence Exclusion
If you decide to live in the inherited property and make it your primary residence, you may qualify for the principal residence exclusion: Individuals can exclude up to $250,000 of capital gains from the sale of their primary residence. Married couples can exclude up to $500,000.
Before the proposition narrowly passed in 2020, parents could pass down their home and their very low property tax rate to their children. But Proposition 19 changed that. Now, the property's value gets reassessed at the time of transfer, and the property taxes could rise along with it.
Prop. 19 would eliminate a loophole that has allowed the children and grandchildren of original property owners to avoid paying market-value taxes on a property that is not their primary residence.
Workarounds to avoid reassessment under Proposition 19
There are a few workarounds that children can use to avoid reassessment of their parents' home under Proposition 19. One option is for the child to move into the home and use it as their primary residence within one year of inheriting it.
1. Senior Citizen Homeowners' Property Tax Exemption. The Senior Citizen Homeowners' Property Tax Exemption is available to homeowners who are at least 65 years old and meet certain income requirements.
A properly drafted living trust is essential for ensuring Proposition 19 compliance and avoiding reassessment. Here's what it should include: Specific Proposition 19 Provisions: The trust must explicitly state the Grantor's intent to qualify for the parent-child property tax exclusion.
Proposition 19 is a constitutional amendment that limits people who inherit family properties from keeping the low property tax base unless they use the home as their own primary residence, but it also allows homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster to transfer the ...
All About the Stepped-Up Basis Loophole. A stepped-up basis is a tax provision that allows heirs to reduce their capital gains taxes. When someone inherits property and investments, the IRS resets the market value of these assets to their value on the date of the original owner's death.
Inherited properties can come with financial responsibilities such as existing mortgages, unpaid property taxes, maintenance costs, and insurance requirements. Be aware of hidden costs, including emergency repairs, property management fees, and legal expenses.
In California, real property is one of the most valuable assets you can inherit from a loved one. But inheriting real estate that has increased in value over time can trigger capital gains tax consequences when you sell that piece of property.
California does not levy an estate tax on any estates, regardless of size.
In November 2020, California voters approved Proposition 19, which, among other things, provided what is known as an “intergenerational transfer exclusion” that allows the taxable value of a property to remain the same for the person receiving the property (the transferee) as that of the person transferring the ...
In California, there is no state-level estate or inheritance tax. If you are a California resident, you do not need to worry about paying an inheritance tax on the money you inherit from a deceased individual. As of 2023, only six states require an inheritance tax on people who inherit money.
When a house is transferred via inheritance, the value of the house is stepped up to its fair market value at the time it was transferred, according to the IRS. This means that a home purchased many years ago is valued at current market value for capital gains.
In California, there is no state inheritance tax. This means that when you inherit assets from a deceased person, you do not owe any tax to the state of California on those inherited assets. This can simplify the process of inheriting property and other assets significantly.
If it was bequeathed to you and you alone, then it is your separate property unless you commingle or transmute your separate property. It does not matter whether you received this inheritance prior to, during, or after your marriage.
Prop. 19 also raises taxes on certain inherited and gifted family properties by closing a Prop. 13. That loophole allowed children and grandchildren who inherited property to also inherit the old property tax base, even if the current market value had increased significantly.
Cons of Prop 19: CA property tax complications
If your child or grandchild must live in the home. If it is used as a second home or vacation property, the home no longer qualifies for the tax benefits. If you have multiple children, there may be disagreement about the property, creating conflict in your life.
When property is placed in a revocable living trust, there is no “change in ownership,” and thus, no reassessment of the current values. Upon the death of the trustor, the revocable living trust becomes irrevocable.
Homeowners who are 55+ or severely disabled can transfer the property tax base of their existing home to another home anywhere in California, regardless of price, to be closer to family or medical care, downsize, or move to a home that better meets their needs without a property tax increase (with an adjustment upward ...
Taxes aren't determined by age, so you will never age out of paying taxes. People who are 65 or older at the end of 2024 have to file a return for tax year 2024 (which is due in 2025) if their gross income is $16,550 or higher. If you're married filing jointly and both 65 or older, that amount is $32,300.
Property taxes are based on the assessed value of your property. The Homeowners' Exemption reduces your property taxes by deducting $7,000 from your property's assessed value before applying the tax rate, and given the one percent statewide property tax rate, this generally equates to $70 in property tax savings.