What Proposition 19 means

Before Proposition 19, California's parent-child exclusion allowed children to inherit real estate from their parents and preserve the parents' low assessed value for property tax purposes, with no limit on the number of properties or the amount of the differential. This allowed families to pass investment properties and vacation homes with dramatically lower property taxes intact to the next generation. Proposition 19, which California voters approved in November 2020 and which became effective February 16, 2021, substantially changed these rules.

Under Proposition 19, a child who inherits a parent's primary residence can still qualify for a parent-child exclusion, but only if the child uses that property as their own primary residence within one year of the transfer. Additionally, 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 the parent's assessed value plus the excess above $1 million. Inherited investment properties, rental properties, and vacation homes no longer qualify for the exclusion at all and are automatically reassessed at market value upon transfer.

The practical effect has been significant for many California families. A parent might have owned a home purchased decades ago for $150,000 that is now worth $1.2 million. Under pre-Prop 19 rules, a child could inherit it and continue paying taxes on the $150,000 assessed value. Under Prop 19, the child must move in within a year to preserve any exclusion, and even then the assessed value will be set at $350,000 ($150,000 assessed plus the $50,000 excess over the $1 million threshold).

Why it matters for trust and probate loans

Prop 19 equalization loans let one heir preserve the family's low property tax basis by buying out co-heirs before the one-year filing deadline. When multiple siblings inherit a parent's home and only one wants to live there, the buying sibling must complete the buyout within the one-year window, file the BOE-19-P form with the county assessor, and establish the property as their primary residence to preserve the exclusion. Without a loan, many families cannot fund the buyout in time.

North Coast Financial funds Prop 19 equalization loans in 8 to 14 business days, which is fast enough to meet the deadline in almost any case where planning begins at least a few weeks in advance. Interest rates run from 9.5% to 10.95% with origination of 1.25 to 1.95 points, no prepayment penalty, and no appraisal fee. See our full article on Proposition 19 and inherited property in California.

Related terms

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

Frequently Asked Questions

Does Proposition 19 apply to property inherited through a trust?
Yes. Proposition 19 applies to transfers of real property from parents to children regardless of whether the transfer occurs through a revocable trust, an irrevocable trust, a will, joint tenancy, or intestate succession. What matters for the exclusion is the relationship between the transferor and transferee, whether the inherited property will be the child's primary residence, and compliance with the filing deadline. The legal mechanism of transfer does not change whether Prop 19 applies.
What is the one-year deadline under Proposition 19?
To qualify for the parent-child exclusion under Prop 19, the child must file the BOE-19-P form with the county assessor and establish the inherited property as their primary residence within one year of the date of transfer (typically the date of the parent's death). This is a hard deadline. Missing it means the property is reassessed at current market value, potentially resulting in a significant and permanent increase in property taxes. An equalization loan can help a family meet this deadline when the buyout requires financing.
What happens to the property tax basis if one co-heir moves in and the others are bought out?
If one child buys out the other heirs and establishes the property as their primary residence within one year, they can file for the parent-child exclusion. The new assessed value will be the parent's assessed value, plus any amount by which the property's fair market value exceeds the parent's assessed value by more than $1 million. If the market value is within $1 million of the assessed value, the full exclusion applies and the assessed value carries over unchanged. The buyout amount paid to co-heirs does not affect this calculation.