What parent-child exclusion means

California property taxes are based on assessed value rather than current market value, thanks to Proposition 13 (1978). A property's assessed value is generally capped at 2% annual increases from the base year assessment, which is typically the purchase price. When property is sold or transfers to a new owner, it is normally reassessed at current market value, potentially causing a dramatic increase in property taxes. The parent-child exclusion prevents that reassessment when qualifying property transfers between parents and children.

Proposition 19, effective February 16, 2021, significantly narrowed the parent-child exclusion that had previously existed under Propositions 58 and 193. Under current law, a child who inherits a parent's home can exclude the transfer from reassessment only if the child uses the property as their own primary residence within one year of the transfer date. If the child does not move in within one year, or if the property is a rental, vacation home, or investment property, it is fully reassessed at current market value.

Even when the primary residence requirement is met, a partial reassessment may apply. Under Prop 19, if the property's current market value exceeds the parent's assessed value by more than $1 million, the child's new assessed value is set at the parent's assessed value plus the excess over $1 million. Only the excess above the $1 million threshold is added back. For properties where the market value is within $1 million of the assessed value, the exclusion fully preserves the parent's low assessed value without any upward adjustment.

Why it matters for trust and probate loans

Preserving the parent-child exclusion under Prop 19 often requires a beneficiary buyout to be completed within one year of the transfer. When multiple siblings inherit a parent's home, only the one who moves in within a year can claim the exclusion, and only if that sibling buys out the others so the property is held solely in that sibling's name. North Coast Financial funds equalization loans specifically designed to meet this deadline, providing the cash needed to pay out co-heirs so one sibling can establish sole ownership and file the BOE-19-P form with the county assessor.

The financial stakes are significant. If a parent paid $200,000 for a home that is now worth $1.3 million, preserving the parent-child exclusion could save the inheriting child $9,000 to $13,000 or more in annual property taxes, compounding over decades of ownership. North Coast Financial funds these equalization loans in 8 to 14 business days, with rates from 9.5% to 10.95% and origination of 1.25 to 1.95 points, no prepayment penalty, and no appraisal fee. Use our Prop 19 savings calculator to estimate the value of preserving the exclusion for your family's property.

Related terms

See also: Proposition 19, Step-up in basis, and our main article on Proposition 19 and California inherited property.

Frequently Asked Questions

What form do I file to claim the parent-child exclusion under Prop 19?
You file form BOE-19-P (Claim for Reassessment Exclusion for Transfer Between Parent and Child Occurring on or After February 16, 2021) with the county assessor in the county where the property is located. The form must be filed within three years of the date of transfer, or before the property is transferred to a third party, whichever is earlier. However, to receive the full benefit prospectively, it is best to file as soon as the exclusion conditions are met. If you are completing a buyout and establishing the property as your primary residence, file promptly after closing.
Does the parent-child exclusion apply to properties that were held in a trust?
Yes. The exclusion applies to transfers between parents and children regardless of whether the property was held in a revocable living trust, irrevocable trust, or owned individually by the parent. What matters is the relationship between the transferor and the transferee. A transfer from a parent's revocable trust to a child is treated the same as a direct transfer from parent to child for purposes of the exclusion. The trust is effectively transparent for this analysis, though the child must still meet the primary residence requirement within one year.
Can the exclusion be preserved if multiple children want to keep the property together?
The exclusion requires that the child claim the property as their own primary residence. If two children inherit the property and both want to keep it, only the share claimed by the one who establishes it as their primary residence would qualify. The other child's share may be subject to partial reassessment. This makes co-ownership of inherited property with one owner-occupant and one non-occupant legally complex from a property tax standpoint. Consulting a property tax advisor or attorney before finalizing a co-ownership arrangement is advisable.