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December 19, 2020 12:42 am Published by Leave your thoughts

Before Proposition 19 passed, parents had the ability to transfer their primary residence and up to $1 million assessed value ($2 million for a married couple) of other real property to their children without reassessment of property taxes.

On February 16, 2021, with the passage of Proposition 19, the parent/child exclusion with respect to property tax rules will change in the following ways:

  1. Primary Residence: A child receiving a primary residence from a parent can receive the home free of property tax reassessment if the home becomes the child’s own primary residence within 12 months of the transfer. Although, the amount that does not get reassessed may be limited depending on the value of the home.
  2. Other Real Properties: Property that is not used as a primary residence will now trigger a property tax reassessment upon transfer between parent and child.
  3. Qualified Personal Residence Trust (“QPRT”) properties: Properties owned by a QPRT will be reassessed at the end of the trust’s term.

How To Beat The New Property Tax Reassessment

You still have time to take advantage of the property tax reassessment IF you are willing to transfer your property(ies) to your children by February 15, 2021. The following are a few actions you may make to take advantage of the current law before Proposition 19 goes into effect.

If You Anticipate Having A Taxable Estate:

If you gift property to your children or a trust on or before February 15, 2021 your property taxes will not be reassessed. In addition, it will remove the property from the taxpayer’s taxable estate for estate tax purposes. Keep in mind that your children may lose the date of death step-up in basis that they would receive if the property was inherited through a trust upon the death of the parent. This may not be an issue if the real property has not appreciated significantly. Also, a parent may want to ensure they retain the right to reside in their primary residence even if they transfer it to a child pursuant to Proposition 19. We recommend that, that should be discussed regarding any transfer.

If You Do Not Anticipate Having A Taxable Estate:

A typical Estate plan is intended to preserve the “Step-up in basis” for assets that may be passed to children as opposed to minimizing future estate tax.

If you prefer to retain Income from Property or You Currently Hold Property in an LLC or Partnership

If you are currently receiving income from property, you can combine the gifting of 51% of the property to your children and retain 49% of the property through an LLC. This would allow the property to bypass the reassessment now and later upon the death of the parents.

If your Property has not Appreciated (Gone Up in Value) Significantly:

There is a way you can set up an LLC, so that your children and their future generations, are able to inherit property free of tax reassessment.

If you are a surviving Spouse with a Decedent’s Trust

If the trust allows you to transfer property to children during your lifetime, gifting the property to your children on or before February 15, 2021 will allow the property to bypass the property tax Reassessment.

Important: Due to the limited time to implement these strategies to pass property without property tax reassessment to your children, we suggest you contact us as soon as possible, as some of these strategies include several lengthy steps that must be completed and implemented by February 15th. You may email us at support@rehmanilawfirm.com with questions or call us to set up a consultation (949-202-1424).

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