This week, in Part 2 of our three-part series on keeping pace with California tax law, we bring you up to speed on the parent-child exclusion, which applies to any real property purchases or transfers between parents and children. In last week’s post, we covered Prop 19, which makes it more affordable for older homeowners to relocate in California.

In a nutshell, the parent-child exclusion enables children to inherit their parents’ property and parents to inherit their children’s property without a property tax increase, subject to certain qualifications and limitations. Prop 19 changed the way the parent-child exclusion works as of Feb. 16, 2021.

The Parent-Child Exclusion Before and After Prop 19

In California, real property, such as a home, is reassessed only upon a change in ownership, but when the change in ownership is within a family — specifically parent to child, child to parent, or grandparent to grandchildren — you can file for a reassessment exclusion to prevent a reassessment or reduce the reassessed value.

Before Prop 19 (effective Feb. 16, 2021), here’s how the parent-child exclusion worked:

• Parents (transferor) could transfer their primary residence to their child/children (transferees) without a reassessment.
• There was no limit on the value of the home that could be transferred.
• The child/children could live in the home, use it as a vacation home, or rent it out.
• Parents could transfer up to $1 million of California real property other than their primary residence to a child/children without reassessment. If the assessed value is more than $1 million, the first million dollars is transferred without change, and only the balance is reassessed.

Prop 19 changed the rules. For any property transfers occurring on or after Feb. 16, 2021, the parent-child exclusion works like this: Continue reading… Continue reading… Continue reading…