Property tax rules and regulations can be very daunting. After all, there are so many of them that are nuanced for different situations. Even as a long-time real estate agent, I still find it interesting to learn more about different property tax rules.
Today, I wanted to take a closer look at Propositions 58 and 193 and how they impact California buyers and sellers.
First off, let’s talk about the difference between the two.
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Proposition 58 was born back in 1986 and established an exclusion from reassessment transfers of real property between parents and their children.
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Proposition 193, which was established ten years later in 1996, created the same tax rule but between grandparents and their grandchildren. The one caveat with Prop 193 is that the parents of the grandchildren must be deceased as of the date of transfer to qualify.
These Propositions are both important because, in the State of California, real property is reassessed at market value any time it is sold or transfers hands. This can have significant financial implications when property taxes adjust drastically.
But because of these two Props, sales and transfers between parents and their children or from grandparents to their grandchildren (assuming the conditions above are met), these properties will not be subject to reassessment as long as the correct application is filed in a timely manner.
What this means is that the new owners would see their taxes calculated on the already established Prop 13 factored base year value instead of current market value at the date the property is acquired. It’s important to note that there are some transfers of real property that are excluded. These include:
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Transfers of primary residences (no value limit)
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Transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.
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Transfers may be the result of a sale, gift, or inheritance. A transfer via a trust also qualifies for this exclusion. For property tax purposes, we look through the trust to the present beneficial owner. When the present beneficial ownership passes from a parent to a child, this is a change in ownership that is eligible for the parent-child exclusion.
I’ve been asked before if it is always a good idea to claim a Prop 58 or 193 exclusion, and the answer is no, it is not always beneficial. There are certain instances where a property has fallen below the transferor’s original Prop 13 factored base year value, and in these cases, the property falls under Prop 58 at the time of transfer. This is a perfect example of a time when it would not make sense to employ Prop 58 or Prop 193 exclusions because using a new Prop 13 base year assessment could result in lower property taxes over time.
Your best course of action is to consult with a real estate expert or an estate planner if you’re considering claiming either of these exclusions. I have worked with many people who meet the parameters specified above, so if you need advice or information about either Prop 58 or 193, I would be happy to discuss your unique situation in more detail.
Please contact me today!