What is Proposition 19
Proposition 19: Passed in 2020, it limits property tax benefits for inherited homes, now applying only if the heir makes it their primary residence.
Proposition 19: New Limits on Inherited Property Taxes
Key Changes Under Prop 19:
Primary Residence Requirement: Heirs can only retain the parent’s low property tax rate if they make the inherited home their primary residence. If they decide to rent or sell the property, it will be reassessed at current market value, which could result in significantly higher taxes.
Reassessment of Non-Primary Residences: If the inherited home is not the heir’s primary residence, it will be reassessed at market value. This could lead to a major increase in property taxes.
Tax Relief Cap: There’s a $1 million cap on tax relief for inherited homes if the property’s market value exceeds the original price by more than $1 million. Beyond that, the property will be reassessed.
Impact on Local Revenue: Prop 19 was designed to increase revenue for local governments and schools but at the cost of reduced tax benefits for families inheriting property.
Solutions to Minimize Property Tax Burdens for Your Heirs:
1- Sell the Property Before You Pass:
Selling your home before passing it to your heirs allows you to avoid Prop 19’s property tax changes. You can secure a favorable financial outcome and prevent your children from facing high property taxes. Selling now may be an excellent option, especially if the home has appreciated in value.
2- Gift the Property While You’re Still Alive:
By gifting the property to your children before your passing, you can bypass Prop 19’s inheritance tax penalties. This option can reduce or eliminate the impact of the law, preserving the property’s lower tax basis for your heirs.
3- Establish a Living Trust:
Placing your property in a living trust allows your heirs to inherit it without triggering Prop 19’s reassessment. A trust can help bypass the law’s restrictions and preserve tax benefits for your family.
Placing your property in a living trust allows your heirs to inherit it without triggering Prop 19’s reassessment. A trust can help bypass the law’s restrictions and preserve tax benefits for your family.
4-Maintain the Property as a Primary Residence:
If your heirs decide to live in the home as their primary residence, they can retain the lower property tax rate. This will avoid the reassessment and prevent tax hikes, but it’s essential that they continue to live there.
If your heirs decide to live in the home as their primary residence, they can retain the lower property tax rate. This will avoid the reassessment and prevent tax hikes, but it’s essential that they continue to live there.
5-Use a Special Needs Trust for Disabled Heirs:
If any of your heirs have disabilities, creating a special needs trust can help avoid Prop 19 tax penalties. These trusts are designed to protect tax benefits and can be structured to meet your family’s needs.
If any of your heirs have disabilities, creating a special needs trust can help avoid Prop 19 tax penalties. These trusts are designed to protect tax benefits and can be structured to meet your family’s needs.
6- Take Advantage of the Step-Up in Basis:
Under the law, your heirs can benefit from a stepped-up basis, meaning the property’s value will be adjusted to the market value at the time of inheritance. This can help reduce capital gains taxes if the property is sold.
Under the law, your heirs can benefit from a stepped-up basis, meaning the property’s value will be adjusted to the market value at the time of inheritance. This can help reduce capital gains taxes if the property is sold.
Take Action Now to Protect Your Family’s Future!
Proposition 19 can create challenges for families inheriting property in California, but with proper planning, you can minimize the tax burden on your heirs. Explore your options, and consult with a tax professional or estate planner to find the best strategy for your situation.
Contact Us Today for a Free Consultation on How to Save on Property Taxes for Your Heirs!
Disclaimer:
Please consult your tax professional or attorney, as John R. Thompson or his affiliates do not provide tax or legal advice. This page is for informational purposes only