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Tax Benefits on California Real Estate Investments: Propositions 58, 59, 60 and 90

Introduction

California's real estate market is known for its dynamism, but it is also renowned for its complex property tax system. However, there are specific regulations, such as Propositions 58, 59, 60, and 90, that offer significant tax benefits to investors and homeowners in certain situations. These propositions make it possible to avoid increased property taxes when acquiring properties from close relatives, which can be crucial for investment strategies.

Proposition 58 and Proposition 193: Transfers without Reevaluation

The Proposition 58, effective November 6, 1986, and Proposition 193, effective March 27, 1996, are constitutional amendments approved by California voters. Both exclude from reassessment real estate transfers between parents and children, as well as from grandparents to grandchildren, under certain specific conditions.

Essentially, if you are acquiring property from your parents, children, grandparents or grandchildren, and you meet the requirements, there will be no reassessment of the property. This means your property taxes will be calculated based on the base value established by Proposition 13, rather than the current market value at the time of purchase.

Propositions 58 and 193 provide a robust reassessment exclusion framework for various real estate transfer situations. This includes the transfer of primary residences with no value limit and the transfer of the first $1 million of property other than primary residences. It is important to note that the $1 million exclusion applies independently to each eligible transferor.

These transfers can be the result of a sale, gift, or inheritance, and even transfers through a trust qualify for this exclusion. For tax purposes, a detailed analysis of the property is performed to determine if it meets the requirements, providing owners and heirs significant opportunities to avoid unwanted tax reassessments.

The Proposition 13 value (base year adjusted value) just before the transfer date. Typically, this value corresponds to the taxable value in the assessment role. If a property is under a Williamson Act (open space) or Mills Act (historic property) contract, the base year's adjusted value is used instead of the restricted value to calculate this amount.

“Children” for purposes of Proposition 58 include:

Any child born to the parents. Any stepchild while the stepparent and stepchild relationship exists. Any son-in-law or daughter-in-law of the parents. Any child adopted before the age of 18. Spouses of eligible children are also eligible until divorce or, in the event of death, until remarriage of the surviving spouse, stepparent, or mother/father-in-law.

A person adopted after turning 18 is not considered a “child” for purposes of the parent-child exclusion.

An eligible “grandchild” for purposes of Proposition 193 is any child of parents who qualify as the grandparent's child on the date of the transfer.

What forms should I use to request these exclusions? For parent-child transfers (Proposition 58):

Request for Exclusion of Reassessment for Parent-Child Transfers, Form BOE-58-AH

For transfers between grandparents and grandchildren (Proposition 193):

Request for exclusion from new assessment for transfers between grandparents and grandchildren, Form BOE-58-G

You can obtain copies of these forms at your county assessor's office or check your county's website, as some offer downloadable forms. Most counties have a website.

Although BOE forms are designed and approved by the state, they are administered by the county.

What are the deadlines to file an application under Propositions 58 and 193?

Generally, to obtain relief retroactive to the date of the transfer, an application must be filed with the county assessor's office by the earliest of the following:

Within 3 years of transfer.

Before making a transfer to a third party.

Proposition 60 and Proposition 90: Change of Residence without Tax Increase

Proposition 60, in combination with Proposition 90, expands tax benefits by allowing the transfer of property between counties. If you are over 55 and want to move to a different property within the same county or to another county participating in Proposition 90, you can do so without a reassessment and, therefore, without experiencing a substantial increase in property taxes. property.

Can I still get the exclusion if I apply after the 3 year period?

As of January 1, 1998, if the transferee has not transferred ownership to a third party, applications can still be filed at any time after the 3-year deadline. However, those filed after three years will only be effective from the date of assessment in the assessment year in which they are filed and will not be retroactive to the date of transfer. Therefore, the first year's enrolled value will be the base year value from the transfer year, adjusted for inflation and any additional value that has been enrolled due to new construction.

Conclusion

Propositions 58, 59, 60 and 90 in California offer valuable opportunities for investors and homeowners who want to maintain control of tax costs and strategically plan their real estate investments. These regulations allow for family ownership transfers without the fear of tax reassessments, making it easier to manage real estate assets and transition to new properties. However, it is crucial to understand the specific details and requirements of each Proposition and, in some cases, seek legal or tax advice to take full advantage of these benefits.

Legal and Tax Disclaimer

Please be advised that the content presented in this blog is for informational purposes only and should not be construed as legal or tax advice. The articles and information provided here are written from the perspective of a real estate agent affiliated with Keller Williams, and do not represent legal or tax counsel.

As the author, I am a licensed real estate professional under Keller Williams, holding Brokerage DRE License Number: #02197031. However, it is important to note that my expertise is in the field of real estate, and not in legal or tax matters. The insights and opinions shared on this blog are based on my experiences and knowledge in the real estate industry and should be treated as general guidance rather than definitive legal or tax advice.

For specific legal or tax concerns relating to any real estate transactions or investments, readers are strongly encouraged to consult with a qualified attorney or tax advisor who can provide tailored advice based on your individual circumstances and the latest legal and regulatory requirements.

The information on this blog is provided "as is" without warranty of any kind, and I, along with Keller Williams and its affiliates, disclaim all liability for any loss, damage, or misunderstanding arising from reliance on the information contained herein.

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