California’s Proposition 19 has now been law for four years, and it’s still bad, even though we are learning to deal with it.
Under the old law, parents could transfer their home and even other real property to their children without an increase in property tax. This was due to the parent-child exclusion.
Proposition 19 wiped out the parent-child exclusion from property tax increases except for one narrow circumstance. The parent’s residence can retain its same low property tax rate if a child moves into the home and makes it her residence and the current fair market value (FMV) of the home is not more than $1 million + the current assessed value. The property tax will increase to the extent the home’s FMV is greater than that.
The days of leaving your home to your children so they can keep it as a rental property and continue to pay your low Proposition 13 property tax is over. As a result of Proposition 19, many children who inherit properties can’t afford to pay the increased property tax and have to sell the properties.
The winners of Proposition 19 are the realtors, who can now earn commissions on the sale of inherited properties. Guess who sponsored and promoted Prop 19?
What will be the long-term effect of Proposition 19 on California real estate? I'll leave that to the economists and historians. Short-term, it makes it less possible for children to keep their parent's home as a rental property. And if the children decide to sell their parent's home because of Proposition 19, it adds a home to California's housing inventory.