Did you know that parents can transfer their home (or family farm) to their children without having the property reassessed to its market value and avoid paying higher property taxes?
In November 2020, California voters approved Proposition 19, which, among other things, provided what is known as an “intergenerational transfer exclusion” that allows the taxable value of a property to remain the same for the person receiving the property (the transferee) as that of the person transferring the property (the transferor), provided certain conditions are met. “Taxable value” means the property's base year value plus inflationary adjustments, commonly referred to as the factored base year value.
Normally, when there is a change in ownership, the property is reassessed at market value, which can significantly increase its assessed value and the amount of property taxes owed. This exclusion prevents a family home (or family farm) from being reassessed and avoids a possible large increase in property taxes.
Revenue and Taxation Code (R&TC) sectio 63.2, which implements the intergenerational exclusion provisions of Proposition 19, allows the family home or family farm to be transferred between parents and children without reassessment, with some market value limitations. The exclusion applies to such property transfers on or after February 16, 2021. (For real property transfers that occurred before February 16, 2021, see Publication 800-1a Information Sheet, Property Tax Savings: Transfers Between Parents and Children Occurring On or Before February 15, 2021.)
Note: Proposition 19 allows transfers in either direction—from parents to child(ren) or from child(ren) to parents.
The exclusion is available only under the following conditions:
- The family home must have been the principal residence of the transferor (for example, parent).
- The transferee (for example, child) must live in the home as their primary residence within one year of the transfer and must continue to occupy the family home.
- The transferee (for example, child) must file for the homeowners' or disabled veterans' exemption on the residence within one year of the transfer. If the property was transferred to two or more children, and one moves out and another moves in, a new claim must be filed within one year of the previous child's move-out date.
- A family farm must be under cultivation or being used for pasture or grazing, or to produce any agricultural commodity (plant and animal products produced for commercial purposes); there is no requirement that a family home be on the property.
The parent-child exclusion is available on transfers from a parent or parents to their:
- Biological or adopted child
- Stepchild
- In-law child (for example, daughter-in-law)
- Foster child, in limited cases
Note: Can also be from child to parent.
Potential for Tax Savings
Property taxes are based on the assessed value of your property. For purposes of California property taxation, real property is reassessed at market value when sold or transferred.
As a result of a sale or transfer, the property's assessed value can sometimes increase significantly, resulting in higher property taxes due each year.
If the market value of the property at the time of the transfer or sale is more than the property's factored base year value, then receiving the parent-child transfer exclusion will result in savings for the transferee (for example, child) because the property taxes would be based on the lower value.
If the exclusion is granted, the parent's factored base year value as of the date of transfer will be the same for the child, as long as the property's current market value does not exceed the factored base year value plus $1 million. If the market value exceeds this limit, the difference is added to the factored base year value, resulting in a new taxable value for the transferee's property.
Example 1: The parents purchased a family home in 1985, and its factored base year value at the time of the transfer to their child was $300,000, while its current market value was $750,000. Since the current market of the property is less than the factored base year value plus $1 million, ($300,000 + $1,000,000 = $1,300,000), the factored base year value of the family home will remain at $300,000 and the child will be paying property taxes based on that value, which is $450,000 less than its $750,000 market value. As a result, the parent-child exclusion will save the child approximately $4,500 in property taxes per year, given the one percent statewide tax rate.
Example 2: The parents purchased a family home in 1985, and its factored base year value at the time of the transfer to their child was $300,000, while its current market value was $1,500,000. Since the current market of the property is more than the factored base year value plus $1 million ($300,000 + $1,000,000 = $1,300,000), the difference of $200,000 ($1,500,000 market value - $1,300,000 allowable transferable value) will be added to the parents' factored base year value resulting in a new taxable value of $500,000 ($200,000 difference + $300,000 factored base year value).
The new taxable value is $1,000,000 less than its $1,500,000 market value; therefore, the parent-child exclusion will save the child approximately $10,000 in property taxes per year, given the one percent statewide tax rate.
How to Apply for the Parent-Child Exclusion
Complete form BOE-19-P, Claim for Reassessment Exclusion for Transfer Between Parent and Child Occurring On or After February 16, 2021. Obtain the claim form from the County Assessor's office where the property is located. Submit the completed form to the same office.
When to File Your Claim
To qualify for relief from the date of transfer, the claim must be filed with the County Assessor within three years of the transfer date, but before transferring the property to a third party. However, a claim is also considered to be timely filed if filed within six months after the date of mailing of the County Assessor's supplemental or escape assessment notice issued for the transfer.
If you don't file the claim on time, you can still obtain relief as long as you still own the property. However, the reduction in property taxes will only be applied for future years, beginning with the year that the claim is filed.
Note: If the property is a family home, a BOE-19-P claim cannot be filed before filing a claim for the homeowners' exemption or disabled veterans' exemption. Remember, you must file for one of these exemptions within one year of the date of transfer.
Helpful Hints
- If the property was inherited as a result of a death, the date of death is considered the date of transfer for property tax purposes, not the date the property was distributed. Keep this in mind to ensure you file the claim form timely.
- There is a value cap (or limit) to the excluded amount, equal to the property's factored base year value at the time of transfer plus $1 million; the amount above the cap is added to the transferred factored base year value. Beginning in 2023, the $1 million allowance will be adjusted annually by an inflation factor, which will benefit taxpayers because a higher amount will be excluded from reassessment.
- A family farm comprised of multiple legal parcels may be eligible for an exclusion for each parcel. The legal parcel containing a family home may qualify separately for the exclusion.
- A transfer of property can occur by purchase or gift; it can also occur through a trust. For example, if a parent's property is put into a trust where upon the death of the parent, the children are the beneficiaries of the trust, a transfer occurs as of the date of death.
- The exclusion applies to a family home that continues as a family home by an eligible transferee or a subsequent eligible transferee. Once it is no longer the family home, such as becoming a rental property, the exclusion is removed. A new value is established as of the January 1 lien date following the transferee's move-out date based on the property's market value as of the date the transferee obtained ownership, adjusted annually for inflation.
- There is no limit to the number of times a family home or a family farm may be transferred under the parent-child exclusion.
- If multiple siblings inherit the family home, only one of the siblings needs to live in it. If that sibling moves out and another sibling moves in within one year of the move-out date, the exclusion will continue. (Note: The other sibling must also file for the homeowners' or disabled veterans' exemption.)
- The exclusion is not available for transfers of property between siblings. For instance, if the parent gave or sold the property to all the siblings first, the parent-child exclusion can apply at that time; however, if a sibling then buys out the other sibling(s), the portion of the property transferred between siblings will be reassessed.
- If you are 55 or older, and selling your principal residence to your child, your child can benefit by transferring your taxable value to them under the parent-child exclusion. However, you cannot also transfer that same taxable value under R&TC section 69.6 (commonly referred to as a base year value transfer) if you buy a replacement property.
- If the market value of the transferred property is less than its factored base year value at the time of the transfer, then claiming the exclusion would not be beneficial.
- The parent-child exclusion under R&TC section 63.2 applies to real property transfers between parents and children; it does not apply to transfers of legal entities. For example, if the parents own ABC Company that owns a family farm, and all of their partnership interests are transferred to a child, the transfer will not qualify for exclusion from reassessment.
Note: A different exclusion is available under R&TC section 62(r) for the transfer of corporation stock from a parent to child upon the parent's death, where a corporation created between 1975 and 1986 owns property that was the parent's principal residence prior to their death and the child lived in that home from the time the corporation was created. To claim such exclusion, a claimant must file BOE-62-R, Reassessment Exclusion for Transfer of Corporation Stock from Parent to Child.
Where to Find Additional Information
Visit the State Board of Equalization's (BOE) website at www.boe.ca.gov for property tax information. For comprehensive information on Proposition 19, visit www.boe.ca.gov/prop19/. Refer to LTA 2022/012, Implementation of Proposition 19 Intergenerational Transfer Exclusion, and Property Tax Rule 462.520, Exclusion From Change in Ownership - Intergenerational Transfers.
Visit the County Assessor's website where the property is located. The BOE's website has contact information for each County Assessor in California, available at www.boe.ca.gov/proptaxes/countycontacts.htm.