Buying a Fullerton home decades ago may have helped keep property taxes low under Proposition 13. Many Orange County families may expect that giving the home to their children will keep the same tax bill. However, Proposition 19 changed these rules in major ways.
How does Prop 19 change property tax rules for Fullerton families?
Proposition 19 took effect in February 2021. It made the parent-to-child property tax break much narrower. Before then, parents could pass a main home and up to $1 million in other real estate to their children without a tax reassessment. Now, only a main home may qualify and certain rules must be met.
Home prices in Orange County have risen over the years. A Fullerton home worth $1.2 million today might have a taxable value of $400,000. That gap could lead to a higher tax bill. The child may face a new tax value based on the home’s current market value unless the child meets the rules for the tax break.
Which rules trigger property tax reassessment for heirs?
A child who inherits a home may lose the parent’s low tax value if either of these applies:
- The child does not make the home their main residence within one year of the transfer.
- The home’s market value is more than the parent’s tax value plus the inflation-adjusted exclusion limit, which is $1,044,586 through February 2027.
State Board of Equalization rules generally call for an exclusion claim within three years or before the child sells the home to someone else. A late filing may not end the tax break, but it could delay the benefit until the year you file the claim.
How does the $1 million exclusion cap work in practice?
The exclusion limit rises over time to keep up with inflation. If the home’s value is above the parent’s tax value plus the limit, the amount above that threshold may raise the home’s new taxable value.
Consider a Fullerton home with a $500,000 tax value and a $1.8 million market value. Adding the $500,000 tax value to the $1,044,586 limit gives a $1,544,586 threshold. The remaining $255,414 could raise the home’s taxable value. That could result in a new taxable value of $755,414.
What law governs parent-child property tax exclusions under Prop 19?
The California Revenue and Taxation Code covers parent-to-child transfers. The law includes a one-year rule for making the home a main residence. It also limits the tax break based on the home’s value and the parent’s tax value. Vacation homes, rental homes and business property generally do not qualify for this parent-child tax break.
Plan to keep your family’s tax base intact
Proposition 19 changed how property tax rules apply when parents pass homes to their children. Reviewing your estate plan may help you spot issues that could affect the home’s tax value.
To evaluate options for protecting a home in Fullerton or Sunny Hills, contact our office at 714-886-6327 or submit an online contact form to schedule a consultation.