How do I preserve my Proposition 13 Base Year Value for my Children or Grandchildren?

Answer:  Property Tax Exclusions:  Propositions 58 and 193

In 1978, Proposition 13’s passage established base year values for all properties in California. 

Over time, property values increased.  Children or grandchildren who inherited real property from their parents/grandparents would find that property taxes would dramatically increase because by law, this was a change of ownership. 

In order to encourage family ownership of property, California voters passed Proposition 58 in 1986 and Proposition 193 in 1996.*

If you are interested in structuring the transfer of your property to your children/grandchildren through the sale of property via a purchase or refinance, please give me a call: 

AJ @ 1.925.688.3820.

The legal reference for Proposition 58 and 193 may be found in the Revenue & Taxation Code Section 63.1. 

The following eligibility requirement of Section 63.1 was provided by Joseph E. Holland, Clerk, Recorder and Assessor for the count of Santa Barbara, California.

1. Transfers of real property between parents and children and between children and parents are excluded from reassessment.  Transfers of real property from grandparents to grandchildren are excluded from reassessment. Transfers from grandchildren to grandparents, however, are NOT excluded from reassessment.  To qualify, all the parents of that grandchild must be deceased as of the date of purchase or transfer.
   
2. The seller's or decedent’s principal residence is totally excluded from reassessment. In addition, $1,000,000 of the seller's or decedent's other real property is also excluded. There is a qualification to this rule under Prop 193. If the grandchild had received property in the past that was excludable under Section 63.1 of the R & T Code as a principal residence, any principal residence that the grandchild receives from the grandparent is considered "other real property" that is subject to the $1,000,000 limitation.
   
3. There is no value limit for excluding the seller's or decedent's principal residence from reassessment. A Homeowners' Exemption or Disabled Veterans' Exemption must have been granted to the seller or decedent. This residence need not be the principal residence of the person who acquires the property.
   
4. The $1,000,000 exclusion, for real property other than the seller's or decedent's principal residence, applies to the assessed value of property immediately before transfer. In other words, real property other than the principal residence, with an assessed value up to $1,000,000 is excluded from reassessment. The sales price or actual "current market value" does not affect the $1,000,000 limit. The $1,000,000 exclusion that is available to grandchildren for property other than a principal residence received from their grandparents is the same $1,000,000 exclusion that they have remaining available from their parents under Proposition 58.
   
5. The total value of property (or properties) that a parent may transfer to all children without reassessment is $1,000,000 of assessed value, for property other than the principal residence.
   This limit is cumulative over time. After property (or properties) with $1,000,000 of assessed value is transferred without reassessment, all future transfers will be reassessed (except the transfer of the principal residence if it has not already been transferred).  The $1,000,000 limit applies only to transfers of properties within the State of California. Transfers of properties in other states are not included in establishing the $1,000,000 limit.
   
6. The $1,000,000 exclusion is a limit for each parent separately. Community property of married parents would have a $2,000,000 limit. Proposition 193 specifies that a grandchild can have excluded only $1,000,000 of property transferred from his or her father AND his parents (paternal grandparents) and $1,000,000 of property transferred from his or her mother AND her parents (maternal grandparents).
   
7. Transfers by sale, gift, devise or inheritance qualify for the exclusion.
   
8. Transfers between parents and children as individuals, from grandparents to grandchildren as individuals, between joint tenants, from trusts to individuals, or from individuals to trusts may qualify for the exclusion.  Transfers of ownership interests in legal entities do not qualify for the exclusion. Transfers through the medium of a trust, however, may qualify for the exclusion.
   
9. Currently, the person who acquires the property must file the claim within three years of the date of transfer, but before transfer to a third party; or within six months after the date of mailing of a Notice of Assessed Value Change, issued as a result of the transfer of property for which the claim is filed, whichever is later. There are limited exceptions to these deadlines under new legislation (Senate Bill 542) which affects 1998-99 fiscal year taxes and thereafter. The property, however, must not have transferred to a third party.