Proposition 19
Proposition 19, passed in California in 2020, included provisions to limit the inheritance of low property tax assessments to family members, introducing a cap exclusion to ensure fairness and prevent misuse. Here’s an explanation of how the cap exclusion works:
Cap Exclusion Details
Primary Residence Requirement:
Under Prop 19, children (or grandchildren if the parents are deceased) can inherit their parents' or grandparents' low property tax assessment only if they use the inherited property as their primary residence.
Value Cap:
Even if the inherited property becomes the primary residence of the inheriting child or grandchild, there is a cap on the value that can be excluded from reassessment. The key elements of the value cap are:
$1 Million Cap: The exclusion applies if the difference between the property's current market value and the original taxable value (assessed value) is $1 million or less. This $1 million cap is adjusted annually for inflation.
Reassessment Beyond Cap: If the difference exceeds $1 million, the excess portion is reassessed at current market value. This means the inherited property will have a higher tax base reflecting its current market value minus $1 million plus the original taxable value.
Example
Original Assessed Value: Suppose the original assessed value of the parent's home is $500,000.
Current Market Value: At the time of transfer, the home's current market value is $2 million.
Value Difference: The difference between the current market value and the original assessed value is $1.5 million.
Cap Application: Since the difference exceeds the $1 million cap, $500,000 of the market value will be reassessed.
New Assessed Value: The new assessed value would be the original assessed value ($500,000) plus the amount exceeding the cap ($500,000), resulting in a new taxable value of $1 million.
