Prop. 19 - Calculating The Parent | Child Exclusion, i.e, The Death Tax

Will Your Child or Grandchild Incur a Death Tax on The Property They Inherit From You?

The Death Tax

Prop. 19 : some call it The Death Tax because of the new way of calculating the parent child transfer exclusion. It used to be that a child (Prop. 58) or grandchild (Prop. 193) could inherit the parent/grandparent’s California home and limited amount of other property and keep the same property taxes. About 75% of the voters approved this. Why is this important? Because we have a history, through Prop. 13 passed by voters, to maintain our real estate taxes reasonable and affordable. Whereas real estate taxes on newly purchased properties are about 1.25% of the sales price. With rising real estate prices, children and grandchildren inheriting property are facing increased taxes and losing out on generational wealth-building. Worse, they may be unable to keep the inherited property due to increased taxes.

Prop. 19, which is now nicknamed The Death Tax Act, was rushedly passed while the focus in 2020 was whether to recall California Governor Newsom. Prop. 19 requires adjustment of the taxable value if the fair market value of the family home is more than the taxable value plus $1,000,000. (Example below)

 If the fair market value of the family home is less than the taxable value plus $1,000,000, then the taxable value will not need to be adjusted.

 If the fair market value of the family home is equal to or more than the taxable value plus $1 million, the new tax will be based on: the fair market value of the family home at the time of purchase or transfer, minus (the original taxable value plus $1,000,000), plus the original taxable value. The result is known as the new combined base year value.

 EXAMPLE:

A single family residence has a taxable value of $425,738. Parent dies on March 1, 2021, and property is inherited by parent’s only child. The residence was the principal residence of both parent and child. Or, the child decides to make it their principal residence after the parent’s death. On parent’s date of death, property has a fair market value of $1,750,000.

On top of the property taxes, your child or grandchild will also be responsible for local taxes and bonds.

We are actively working on an initiative to protect our children and grandchildren from excessive taxes and to restore Propositions 58 and 193 to the state constitution. The Repeal The Death Tax Act will do just that. To sign a petition to help help get this on the next ballot, please contact me.

To find out the market value of your property, please call me at (310) 519-7670.

For more information and updates on Prop. 19, please visit assessor.lacounty.gov/prop19

Disclaimer: Information on this document should not be construed as legal advice, but is designed merely to inform the public on tax relief opportunities processed by the Office of the Los Angeles County Assessor. If you have any questions regarding your particular property tax position, it is recommended that you consult with an attorney or a property tax professional.