You may have heard a lot about Prop 58 recently and are wondering what it means. Generally speaking, Proposition 58 stipulates that real property transfers, from parent to child or child to parent, are excluded from reassessment. By extension, Proposition 193 brings tax relief to include transfers from grandparent(s) to grandchild(ren). In either case, you must file a claim within three years of the date of transfer in order to get the full benefit of the exclusion.
Let’s recap what it is and provide you with a few interesting facts to bring you up to speed.
- Proposition 58, or Prop 58 for short, went into effect on November 6, 1986. It’s a constitutional amendment approved by California voters that excludes from reassessment transfers of real property between parents and children.
- Claims must be filed with the county assessor’s office within three years of the transfer or prior to transfer to a third party.
- Transfers of real property that are excluded from reassessment by Propositions 58 and 193 include:
- Transfers of primary residences
- Transfers of the first $1 million of real property other than the primary residence. The $1 million exclusion will apply separately to each eligible transferor.
- Transfers may be result of a sale, gift, or inheritance. A transfer via a trust can also qualify for this exclusion. When the present beneficial ownership passes from a parent to a child, this is considered a change in ownership eligible for the parent-child exclusion.
- A “child” for purposes of Proposition 58, according to the California State Board of Equalization includes:
- Any child born of the parent(s).
- Any stepchild while the relationship of stepparent and stepchild is still in existence.
- Any son-in-law or daughter-in-law of the parent(s).
- Any adopted child, provided they were adopted before 18 years of age.
- A person adopted after reaching the age of 18 is not considered a “child” for purposes of the parent-child exclusion.
- The form you must use for parent-child transfers (Proposition 58) is “Claim for Reassessment Exclusion for Transfer Between Parent and Child, Form BOE-58-AH.”
- Real estate that is transferred from parent to child, or from child to parent, may be excluded from reassessment.
- The established Prop. 13 taxable value will not be affected by the transfer.
- Exclusion does not come automatically; one must file a timely claim with the Assessor’s Office.
- The trustee can allocate certain assets to each individual beneficiary. If one child receives property and other children receive other assets, then that one child can benefit from the parent-child exclusion, provided the value of the property does not exceed that child’s share of the whole estate.
- If the value of the property is more than that child’s share of the estate, the excess is considered to be originating from a sibling and is thus subject to reassessment as a sibling-to-sibling transfer.
- The new owner’s taxes are to be calculated on the Prop. 13 factored value, rather than the current market value once the property is acquired.
- There is a $1 million limit (taxable value) on transfers of non-principal residence property.
- There is no dollar limit on the original owner’s principal residence.
- Transfers between legal entities (i.e., partnerships and corporations) that are owned by parents or children do not qualify.
- Both propositions allow the new property owners to prevent property tax increases in the event that they receive property from their parents or children or from their grandparents.
- In some cases, such as where the transferred property was being assessed at its current market value, it may be beneficial for the new owner not to claim the exemption; rather, they can accept a new Proposition 13 base year reassessment, which may result in lower property taxes over time.
- Failing to understand the exclusions, filing the proper paperwork on time and taking the time to engage in careful planning and execution can result in unfavorable outcomes. This is why it is highly recommended to partner with an expert in California trust loan beneficiaries.
Contact HCS Equity
To learn more about how Prop 58 affects you, contact your proven California trust loan providers at 877-427-9820 or feel free to fill out our online form. Proper handling of Prop 58 as well as timely filing are crucial to success. Get help and call us today.
This article is for illustrative purposes only, HCS Equity does not provide legal advise or services.