In 1986, California voters approved a constitutional amendment under Proposition 58, allowing the exclusion of property tax reassessments when parents transfer property to their children. Ten years later, provisions for property tax reassessment exclusions for grandparents to grandchildren were also codified in March of 1996 under Proposition 193.
Understanding Proposition 58 & 193 and learning how to navigate through it will help you glean the benefits when it comes to transferring your property to your children or grandchildren.
Property Tax Reassessment in California
Each year, California property tax rates are about 1% of the assessed value of the property. Under California tax law, Proposition 13 limits this rise to your property’s value to 2% per annum. This limit protects homeowners from hefty property tax increases on a year-to-year basis.
Certain activities can trigger a reassessment such as new construction on the property or a change in ownership. In the case of a change in ownership, beneficiaries (your children or grandchildren) can be exposed to much higher property taxes assuming the reassessed value at the time of the ownership change would exceed the 2% reassessment limit from Prop 13.
Prop 58 & 193: Exclusion From Property Tax Reassessment
Proposition 58 allows parents to transfer property to their children without triggering a property tax reassessment. Similarly, Proposition 193 permits grandparents to transfer property to their grandchildren without facing property tax reassessment. It is important to note that the Prop 193 exclusion is valid only if the Prop 58 exclusion cannot be applied—meaning the generation in between the grandparents and grandchildren (e.g. the parents of the grandchildren) must already have passed away.
Propositions 58 and 193 exclude three types of real property transfers from a property tax reassessment:
- Transfer of primary residences: There is no limit placed on the assessed value of a primary residence eligible for reassessment exemption. In fact, the person acquiring the property does not need to be the new primary residence.
- Transfer of other properties up to a limit: You may claim an exclusion on transfers of properties other than your primary residence, up to the first $1 million in property value.
- Transfer of property through gift, sale, or inheritance: Parent-child transfers through trusts also qualify for the property tax reassessment exclusions.
How to Properly Utilize Proposition 58
To take advantage of Prop 58, certain eligibility requirements must be met. For instance, eligible children under this proposition include:
- Children born of the parents
- Son-in-law or daughter-in-law
- Children adopted under the age of 18
- Children of a child of the grandparent (for Prop 193)
Proposition 58, however, does not automatically apply to each parent-child transfer. To reap the full benefits of Prop 58, you must make a filing within three years of the transfer of ownership
There are several forms you are required to file for these property tax reassessment. They are :
Proposition 58. Form BOE-58-AH: Claim for Reassessment Exclusion for Transfer Between Parent and Child
Proposition 193. Form BOE-58-G: Claim for Reassessment Exclusion for Transfer Between Grandparent and Grandchild
HCS Equity – How Private Capital Can Help
Retaining a Prop 13 property tax base is vital to many for good reasons. A third party loan provides capital into the trust or estate which facilities the equalization of distribution.
HCS Equity provides Proposition 58 loans to prevent hefty property tax hikes on properties in irrevocable trusts,estates, and probates. Using our own capital, we offer competitive rates, interest-only payments, and no prepay penalties on our loans. For any questions about Proposition 58 or the loan process, contact us at (831) 250-1251. Our loan specialists will work with you to find the best solution for your needs.