In November 2020, California voters narrowly approved Proposition 19. This law impacts the way that property taxes are assessed, particularly related to transferences between family members and property owned by certain classes of owners. As with all real estate taxation changes, this brings up questions about the impacts on homeownership.
Before calling up private money loans California residents should understand the Prop 19 effects on how properties are taxed. One important element is how the law affects trusts.
What Prop 19 Does
The proposition increases the tax burden of people who inherit property while decreasing it for homeowner age 55 and over, those with disabilities and victims of natural disasters. The goal of this law is to protect groups that often have financial difficulties without excessively reducing the overall property tax income for the state.
In fact, it is likely that this will increase the overall property tax income. According to the bill, any net state tax revenues will be used to invest in wildfire response and reimbursing local governments for handling wildfires.
The Impact on Transferring Property
Many families have worked with banks and California hard money lenders to buy real estate and build wealth. Most parents want to be able to transfer their property to their children or other family members when they pass away or otherwise no longer need the property. However, part of Proposition 19 greatly impacts the tax implications of doing so.
In California, Real estate is assessed for taxes when it changes hands. This can be very advantageous if you own property for a long time. Before Prop 19, parents could transfer real estate to children without it being reassessed.
Under the new law, the exemption is removed for all property other than primary residences valued under $1 million. Primary residences over this amount will be partially reassessed while non-primary residences will be fully reassessed.
How Trusts Are Affected
Trusts are also impacted by the law. There are many types of trusts, each with different rules. However, they can be broadly classified are revocable and irrevocable. For a revocable trust, the property will not be considered to have been transferred until the primary beneficiary changes (usually when the parent passes away). In this case, it will be treated as a normal transference of property if it happens after Prop 19 takes effect.
For irrevocable trusts, if they are made before Prop 19 takes effect, the ownership will already have been transferred. Thus, it may be possible to avoid the additional taxes. However, it is important to note that this can vary. If you are considering this option, make sure to consult with an attorney for personalized advice.
Understanding how Proposition 19 will affect your property taxes is valuable. It can help you build wealth more intelligently. By working with hard money lenders Los Angeles and other California residents can potentially make some timely property investments before Proposition 19 takes effect to enjoy the previous tax laws. People who qualify for the tax deductions should wait to buy or sell any property. Learn more today.