Client Alert

Primary Residence Can Be Transferred Between Generations

In California, real property is reassessed at market value if it is sold or transferred. If the property has been in the family for a long time, the resulting tax hike can be dramatic.

Thanks to two voter-approved constitutional amendments, property transferred between parents and children, or grandparents and grandchildren if both parents are dead, do not have to be reassessed and the property tax increase will be minimal – no more than two percent a year plus the value of improvements.

Who is considered eligible:

Any child born of the parents.
Any stepchild as long as the relationship between stepchild and stepparent still exists.
Any son-in-law or daughter-in-law of the parents until divorce or, in case of the child’s death, remarriage of the surviving spouse.
Any child adopted before age eighteen – if adopted after age eighteen, the person is not considered a child in this instance.
Any grandchild whose parents have died before their grandparents.
The transfer is good for the primary residence and the first $1 million of property other than the primary residence.

If more than one property is involved or more than one child is involved, the first property will get the exclusion and the others will be limited to the $1 million cap.

Only for families and trusts, not corporations

It’s important to note that the exclusion doesn’t apply for family partnerships, LLCs or corporations, even if the legal entity is wholly owned by the child or grandchild.

The state’s Legislative Analyst’s Office found that between 60,000 and 80,000 properties use the exemption each year. In 2015-16, the exemption reduced statewide property tax revenue by about $1.5 billion.

Posted in Client Alert, Heirs / Beneficiaries, Taxes / Laws.