|
Propositions 58/193
[Transfers Between Parent and Child; Grandparent and Grandchild]
- What is Proposition 58?
- What is Proposition 193?
- How do these Propositions work?
- Which transfers of real property are excluded from reassessment by Propositions 58 and 193?
- What value of the transferred property is counted toward the $1 million exclusion limit?
- To qualify for the exclusion, must the transfer be only a result of a gift?
- Will a transfer via a trust qualify for this exclusion?
- Is it always beneficial to claim this exclusion?
- Who are considered eligible children under Proposition 58?
- Who are considered eligible grandchildren under Proposition 193?
- Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and she was divorced from her husband (my ex-son-in-law) who is still living?
- Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and her husband (grandchildren's father) has not remarried?
- I have raised my two stepchildren alone since their mother, my wife, died ten years ago. Now that the children are grown adults, their grandparents wish to gift a piece of bare land to them. Can this transfer be sheltered from reappraisal under Proposition 193?
- I want to give my second home to my grandson, but his father, my son, is still alive. Can my son file a disclaimer so that my grandson is eligible for the grandparent-grandchild exclusion?
- I'm thinking of giving several rental properties to my children. Can I decide which child gets the exclusion?
- My two sisters and I recently bought several properties from our parents. Which one is entitled to the exclusion?
- My mother recently died. She owned three properties via her trust. The trust provides that my two sisters and I are to share and share alike all the trust assets. However, each of us wants to take title to a separate property. Would the properties be eligible for the parent-child exclusion?
- What is a trust "sprinkle/spray" provision? How does this affect a parent-child transfer?
- My father's property was in a trust. The assessor asked for a copy of the trust. Can I provide a certification of trust in lieu of the trust documents?
- Is the transfer of real property to or from my family partnership eligible for the exclusions?
- Is the transfer of real property to my grandchild's limited liability company eligible for the Proposition 193 exclusion?
- My mother was the sole beneficiary of two trusts which owned a family partnership that owned real property. I recently inherited the partnership interest via the trusts. Is this eligible for the parent-child exclusion?
- My mom and dad gave me a partial interest in their real property. I applied for and was granted the parent-child exclusion. Now we want to put the property into a family partnership. Will these steps be considered as one transaction?
- I recently inherited the family home, but I don't really want to live there. Do I have to make it my principal residence to qualify for the exclusion?
- My parents just gave me their house that sits on ten acres of land. Is there a limit for excluding the principal residence from reassessment?
- I am over 55 and planning on selling my long-time residence to my child. Can my child benefit from the parent-child exclusion and can I also transfer my base year value Proposition 60 when I purchase a replacement property?
- Is there a limit placed on my principal residence's assessed value that may be excluded from reassessment?
- Can each of my four children receive $1 million of real property?
- My granddaughter has already received the exclusion of $1 million of value in other real property from her deceased parents. As her maternal grandparent, am I allowed to transfer $1 million of real property to her and be excluded as well?
- Before he died, my divorced son transferred his home to his son that qualified for exclusion under Proposition 58. May I also transfer my home to my grandson and qualify for the exclusion?
- My grandfather gave me seven commercial properties. How do you decide which properties will get the $1 million exclusion?
- What forms do I use to file for these exclusions?
- What are the time filing requirements of Propositions 58 and 193?
- Can I still be granted the exclusion if I file after the three-year filing period?
- My mother inherited a home from her mother in 1985. Can she now file for prospective relief?
- I still have questions about Propositions 58/193. Where can I find more information?
- What is Proposition 58?
Proposition 58, effective November 6, 1986, is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property between parents and children. Proposition 58 is codified by section 63.1 of the Revenue and Taxation Code.
- What is Proposition 193?
Proposition 193, effective March 27, 1996, is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property from grandparents to grandchildren, providing that all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer. Proposition 193 is also codified by section 63.1 of the Revenue and Taxation Code.
Back to Top of Page
- How do these Propositions work?
In the State of California, real property is reassessed at market value if it is sold or transferred and property taxes can sometimes increase dramatically as a result. However, if the sale or transfer is between parents and their children, or from grandparents to their grandchildren, under limited circumstances, the property will not be reassessed if certain conditions are met and the proper application is timely filed.
These propositions allow the new property owners to avoid property tax increases when acquiring property from their parents or children or from their grandparents. The new owner's taxes are calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired.
- Which transfers of real property are excluded from reassessment by Propositions 58 and 193?
- Transfers of primary residences (no value limit)
- Transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.
Back to Top of Page
- What value of the transferred property is counted toward the $1 million exclusion limit?
The Proposition 13 value (factored base year value) just prior to the date of transfer. Usually, this is the taxable value on the assessment roll. If a property is under a Williamson Act (open space) or Mills Act (historical property) contract, it is the factored base year value that is counted, not the restricted value.
- To qualify for the exclusion, must the transfer be only a result of a gift?
No. Transfers may be result of a sale, gift, or inheritance.
Back to Top of Page
- Will a transfer via a trust qualify for this exclusion?
Yes. 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.
- Is it always beneficial to claim this exclusion?
No. In cases where the transferred property was being assessed at its current market value under Proposition 8 at time of transfer (that is, its market value had fallen below the transferor's original Proposition 13 factored base year value), it may be beneficial for the new owner not to claim the exemption and instead accept a new Proposition 13 base year reassessment. By doing so in this circumstance, the reassessment can result in lower property taxes over time by locking in the lower market value as the property's new base year value as of the date of transfer.
Otherwise, the higher original Proposition 13 base year value set under the transferor's ownership would some day be reinstated as market conditions improve over time and at a level higher than they would be if the property had received a new Proposition 13 base year value as of the date the property was transferred.
In any case, you may wish to consult with a real estate or estate planning expert for advice before claiming this exclusion.
Back to Top of Page
- Who are considered eligible children under Proposition 58?
A "child" for purposes of Proposition 58 includes:
- Any child born of the parent(s).
- Any stepchild while the relationship of stepparent and stepchild exists.
- Any son-in-law or daughter-in-law of the parent(s).
- Any adopted child who was adopted before the age of 18.
Spouses of eligible children are also eligible until divorce or, if terminated by death, until the remarriage of the surviving spouse, stepparent, or parent-in-law.
- Who are considered eligible grandchildren under Proposition 193?
An eligible "grandchild" for purposes of Proposition 193 is any child of parent(s) who qualify as child(ren) of the grandparents as of the date of transfer.
Back to Top of Page
- Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and she was divorced from her husband (my ex-son-in-law) who is still living?
Yes. Your daughter's divorce terminated the relationship between you and your son-in-law. Since your ex-son-in-law is not considered your child for purposes of this exclusion, your grandchildren are eligible transferees of your property.
- Are my grandchildren eligible transferees of my property for purposes of Proposition 193 if my daughter passed away and her husband (grandchildren's father) has not remarried?
No. Your son-in-law is still deemed to be a "child" of yours, until he remarries, thus disqualifying your grandchildren as eligible transferees.
Back to Top of Page
- I have raised my two stepchildren alone since their mother, my wife, died ten years ago. Now that the children are grown adults, their grandparents wish to gift a piece of bare land to them. Can this transfer be sheltered from reappraisal under Proposition 193?
Yes, assuming the other conditions are met and a proper claim is filed. For transfers occurring on or after January 1, 2006, it is not necessary that the son-in-law or daughter-in-law who is stepparent to the grandchild be deceased in order for the grandchild to be eligible transferees.
- I want to give my second home to my grandson, but his father, my son, is still alive. Can my son file a disclaimer so that my grandson is eligible for the grandparent-grandchild exclusion?
No. Even though a disclaimer means the person filing the disclaimer is treated as predeceased, this does not make the person dead as required by the California Constitution.
Back to Top of Page
- I'm thinking of giving several rental properties to my children. Can I decide which child gets the exclusion?
The property that transferred first, for which a claim was filed, will get the exclusion. Thereafter, other properties may also receive the exclusion as long as the cumulative factored base year value of the properties excluded has not exceeded $1 million for each transferor.
- My two sisters and I recently bought several properties from our parents. Which one is entitled to the exclusion?
If you jointly own the properties with your sisters, you'll have to decide that amongst yourselves. On the other hand, if three separate properties were transferred individually and claims filed on all properties, the first property transferred will get the exclusion up until the $1 million (or $2 million for married couples) limit has been reached.
Back to Top of Page
- My mother recently died. She owned three properties via her trust. The trust provides that my two sisters and I are to share and share alike all the trust assets. However, each of us wants to take title to a separate property. Would the properties be eligible for the parent-child exclusion?
The administration of a trust is governed by the trust instrument. If the trustee has the power to distribute on a non-pro rata basis, this means the trustee can allocate specific assets to individual beneficiaries. If one child receives real property and other children other assets, then the one child can receive the parent-child exclusion as long as the value of the real property does not exceed that child's share of the entire estate. If the value of the real property exceeds that child's share of the estate, the excess is considered to be coming from a sibling and, thus, subject to reassessment as a sibling-to-sibling transfer.
For further information on trust and will distribution, please see Letter To Assessors No. 91/08.
- What is a trust "sprinkle/spray" provision? How does this affect a parent-child transfer?
A "sprinkle or spray power" is a provision which gives the trustee complete discretion to distribute trust income or property to a number of potential beneficiaries. When a trust contains a sprinkle or spray provision, to avoid a change in ownership and reassessment, all of the persons included as beneficiaries under that provision must have an exclusion. If even one person included as a beneficiary is not excludable, then 100 percent of the trust property is subject to change in ownership. For example, if the "pool" of beneficiaries includes three children and a nephew, none of the children will be able to receive the parent-child exclusion because there is no available exclusion for the nephew.
Back to Top of Page
- My father's property was in a trust. The assessor asked for a copy of the trust. Can I provide a certification of trust in lieu of the trust documents?
A certification of trust is not sufficient evidence upon which to make a determination of eligibility for the parent-child exclusion if it does not identify the beneficiaries or their interests in the property held in trust. An assessor may require a claimant for the exclusion to either submit the trust instrument or copies of portions of the instrument that identify the beneficiaries and their interests, enumerate the powers of the trustee, and set forth other relevant terms regarding the disposition of the trust property and assets, as a condition of processing and granting the exclusion.
- Is the transfer of real property to or from my family partnership eligible for the exclusions?
No. Transfers of real property must be between eligible parents and children or grandparents to grandchildren, not legal entities.
Back to Top of Page
- Is the transfer of real property to my grandchild's limited liability company eligible for the Proposition 193 exclusion?
No. A limited liability company is considered a legal entity, as are partnerships, and corporations. Transfers of real property must be from an eligible grandparent to an eligible grandchild/grandchildren. A legal entity, even if the legal entity is wholly owned by the grandchildren, is not an eligible transferee.
- My mother was the sole beneficiary of two trusts which owned a family partnership that owned real property. I recently inherited the partnership interest via the trusts. Is this eligible for the parent-child exclusion?
No. A transfer of partnership interest is not a transfer of real property and is not eligible for the parent-child exclusion.
Back to Top of Page
- My mom and dad gave me a partial interest in their real property. I applied for and was granted the parent-child exclusion. Now we want to put the property into a family partnership. Will these steps be considered as one transaction?
The step transaction doctrine is applied when a series of transfers are made merely to avoid reappraisal. However, the step transaction doctrine does not apply to multiple transfers of real property and legal entity interests between parents and children consistent with the legislative intent, as expressed in the uncodified note in the bill that enacted Revenue and Taxation Code section 63.1 (section 2 of Chapter 48, Statutes of 1987).
- I recently inherited the family home, but I don't really want to live there. Do I have to make it my principal residence to qualify for the exclusion?
No. The property need not be the new principal residence of the person that acquired the property. It is only the transferor who must have been granted a homeowners' exemption or disabled veterans' exemption on the property before the transfer.
Back to Top of Page
- My parents just gave me their house that sits on ten acres of land. Is there a limit for excluding the principal residence from reassessment?
Yes. Ten acres exceeds the amount of land necessary for a home site unless the property is zoned for a minimum of ten acre sites. If not, only a reasonable amount of land would be considered part of the principal residence and the value of the remaining land applied toward the $1 million limit.
- I am over 55 and planning on selling my long-time residence to my child. Can my child benefit from the parent-child exclusion and can I also transfer my base year value (Proposition 60) when I purchase a replacement property?
No. You must choose which exclusion you wish to apply your base year value. If you sell the property to your child and choose to transfer your base year value using the parent-child exclusion, then the base year value is no longer yours to transfer to a replacement property.
Back to Top of Page
- Is there a limit placed on my principal residence's assessed value that may be excluded from reassessment?
No. The $1 million limit applies only if the property was not granted a homeowners' exemption or disabled veterans' exemption before the transfer.
- Can each of my four children receive $1 million of real property?
No. The exclusion is allowed only up to the first $1 million you transfer to your children.
Back to Top of Page
- My granddaughter has already received the exclusion of $1 million of value in other real property from her deceased parents. As her maternal grandparent, am I allowed to transfer $1 million of real property to her and be excluded as well?
The $1 million exclusion your granddaughter already received is considered one-half from her mother and one-half from her father. Since the exclusion of $2 million is allowed for an eligible married couple, as her maternal grandparent, you may transfer $500,000 of property value to her, and her paternal grandparent may transfer the other $500,000 to her.
The $2 million exclusion available to your grandchild for property other than a principal residence is the same $2 million full cash value exclusion which she had from her parents under Proposition 58. Your grandchild may exclude $1 million of property transferred from her father and his parents (paternal grandparents) and $1 million of property transferred from her mother and her parents (maternal grandparents) for a total of $2 million. Claims are reported under the deceased parent's social security number.
The grandparent-grandchild exclusion is really an extension of the parent-child exclusion; it is not a true exclusion from grandparent to grandchild. A transfer of real property from a grandparent to grandchild is counted against the deceased parent, not the grandparent. If the deceased parent used his/her $1 million exclusion, then there is no exclusion available to apply to any transfer from the grandparent to the grandchild.
- Before he died, my divorced son transferred his home to his son that qualified for exclusion under Proposition 58. May I also transfer my home to my grandson and qualify for the exclusion?
No. The transfer of your home may not be excluded as a principal place of residence if he already received a principal residence, or interest therein, that qualified under the Proposition 58 exclusion. However, your house may be excluded by applying it toward your deceased son's first $1 million limit of "other real property" as allowed under the proposition. (The grandparent to grandchild exclusion is really an extension of the parent-child exclusion; if the exclusion was already used by the parent, it is no longer available to the grandparent.)
Back to Top of Page
- My grandfather gave me seven commercial properties. How do you decide which properties will get the $1 million exclusion?
Assuming you qualify for the exclusion and all the properties transferred on the same day, you must make that decision. The $1 million of the commercial properties may be excluded if your deceased parent did not use any of his/her $1 million exclusion.
- What forms do I use to file for these exclusions?
For parent-child transfers (Proposition 58):
Claim for Reassessment Exclusion for Transfer Between Parent and Child,
Form BOE-58-AH
For grandparent-to-grandchild transfers (Proposition 193):
Claim for Reassessment Exclusion for Transfer Between Grandparent and Grandchild,
Form BOE-58-G
Copies of these forms are available from your assessor's office or you may check with your county's website as some provide a downloadable form. Most counties have a website which may be accessed via the following link:http://www.boe.ca.gov/proptaxes/assessors.htm.
Even though BOE forms are state designed and approved, BOE forms are administered by the county and are NOT available on this website.
Back to Top of Page
- What are the time filing requirements of Propositions 58 and 193?
Generally, to get relief retroactive to the date of transfer, a claim must be filed with the county assessor's office by the earliest of the following:
- Within three years of the transfer
- Prior to transferring to a third party
If a notice of supplemental or escape assessment is mailed after the deadline for either of these periods has passed, then the transferee has an additional six months from the date of the notice to file a claim. For example, if a taxpayer received a Notice of Supplemental Assessment for a parent-child transfer dated January 1, 2003, and then received a Notice of Proposed Escape Assessment dated April 1, 2006, the taxpayer would have six months from April 1, 2006 to file a claim with the assessor.
- Can I still be granted the exclusion if I file after the three-year filing period?
Effective January 1, 1998, if the transferee has not transferred the property to a third party, applications may still be filed at any time after the three-year deadline; however, those filed after three years will only become effective for the lien date in the assessment year in which they are filed and will not be retroactive to the date of transfer. Therefore, the first year's enrolled value would be the base year value as of the year of transfer, factored for inflation plus any additional value which has been enrolled because of new construction.
Back to Top of Page
- My mother inherited a home from her mother in 1985. Can she now file for prospective relief?
No. Since the transfer between parent and child occurred before the effective date of Proposition 58, this transfer is not eligible for the exclusion.
- I still have questions about Propositions 58/193. Where can I find more information?
If you still have questions about Propositions 58/193, you may find the answers in Letter To Assessors No. 98/23 or, you may call the Technical Services Section at 916-445-4982.
Back to Top of Page
|
