Q: We are the adult children and beneficiaries of an AB trust in California.

A: Everyone who buys real estate in qualifies for Proposition 13. There have been attacks on Prop. 13 ever since it was passed including a false claim that Prop. 13 only applies to people who bought homes in the 1970’s. That is NOT accurate. Everyone who buys real estate in California qualifies.

Prior to Prop. 13, the government raised property taxes whenever it wanted, often doubling the tax from year to year. That forced people to sell their homes, which voters were not happy about. So, they rebelled and, along with the Howard Jarvis Foundation, passed Prop. 13 saying the government can only raise property tax 2% a year. So, once someone buys CA real estate, their property tax is set and, from that point forward, it will only go up 2% a year. Now you know why the government wants to get rid of Prop. 13; it wants to double property taxes whenever it wants. But every attack on Prop. 13 put on the ballot was rejected by voters. So, it is still the law.

Here’s how it works for inherited real estate: If the last parent died BEFORE February 16, 2021, then the “children” (adults) who inherit real estate from their parents automatically pay the same tax rate as their parents did, then it is raised 2% a year from there. It didn’t matter if it was rental property, a vacant lot, or a home. All real estate was treated the same. But no longer…

A few years ago, property tax calculation was changed for inherited CA properties because voters passed the Home Protection Act for Severely Disabled, Elderly, and Victims of Natural Disasters (Prop. 19). I am convinced people have no idea what they voted for. They thought they were helping severely disabled people. Prop. 19 did that, but the “helpful” part of the proposition was only HALF of the law. The other half changed how property tax will be calculated for inherited real estate.

If a parent died on February 16, 2021 or thereafter, then all real estate is AUTOMATICALLY reassessed for property tax purposes, meaning the tax will go up on all inherited real estate except one: ONLY the parent’s primary residence is eligible to be treated the old way, meaning children pay the same property tax rate as their the parent. But this exception only applies if BOTH of the following are true:

(1) The parent was living in the residence at the time of death. The parent can be on vacation or in a hospital when they died, but if they moved into their kid’s home or an Alzheimer’s facility, for example, then the home will automatically be reassessed.

AND

(2) One of the children must move into the parent’s home and make it their primary residence within one year of the parent’s death. If that child ever moves out and another child does not move in, the home will be reassessed in the year the child moved out.

So, the vast majority of inherited real estate will have its property tax go up dramatically when the owner dies. For example, if a parent bought a home in 1980 and the property tax went up 2% a year, then dies in 2025, and the family turns it into a rental, the County Assessor will calculate what the property tax would be if someone bought the house at market value on the date of the parent’s death. Again, this happens automatically and a supplemental tax bill will be sent out after the fact. Since the value of real estate goes up much faster than 2% a year, property tax would be calculated as if the children just bought a $1 million home (or whatever the value is on the parent’s date of death.) I have clients who received a $30,000 tax bill! So, once again, people are being forced to sell their real estate.

The Jarvis Foundation has twice tried to get Prop. 19 removed from the books but, because so few people know what they voted for, Jarvis was unable to get the millions of signatures needed to put it on a ballot! I encourage all who read this to get on the Jarvis Foundation’s mailing list and sign up to get this new law on a ballot so the voters can decide.

A: You should know that Proposition 13 limits property tax increases by basing the assessment on the property's original purchase price with a capped annual inflation adjustment. Since the house remains in the trust and continues to be assessed under Proposition 13, renting it out does not, by itself, trigger a reassessment or a change in the tax rate.

If no change in legal ownership occurs and you don’t make significant improvements that might affect the property’s value, the tax rate should remain at the current level. A shift from personal use to a rental situation does not normally cause an increase in property taxes under Proposition 13.

It’s a good idea to check with your local tax assessor’s office to ensure that there are no local regulations or nuances affecting your specific situation.