California's Proposition 13 (1978) limits property tax assessments to the purchase price (base year value) and allows increases of no more than 2% per year. This creates enormous built-in property tax savings for long-term owners — a home purchased in 1990 for $400,000 may have an assessed value well below its current market value of $2M+, creating a tax basis that is highly valuable.
Proposition 19 (passed November 2020, effective February 16, 2021 for parent-child transfers) fundamentally changed how these tax benefits are inherited and transferred.
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Before Prop 19 (under former Propositions 58 and 193), a parent could transfer ANY real property to a child, and the child could keep the parent's low assessed value regardless of:
This allowed families to pass multiple rental properties, vacation homes, and commercial properties to children with the parent's low Prop 13 basis intact.
Prop 19 dramatically restricted the parent-child exclusion:
Primary residence only: The low assessed value can only be transferred if the property is the transferee child's primary residence within 1 year of transfer.
Value cap: Even for a qualifying primary residence transfer, if the property's fair market value exceeds the parent's assessed value by more than $1,000,000, the excess above that threshold is added to the assessed value.
Example: Parent's home has assessed value of $500,000 and current FMV of $2.5M. Under Prop 19:
Non-primary residence: Investment properties, vacation homes, second homes — no carryover of parent's assessed value. Child receives the FMV at transfer as the new base year value. This is a major tax increase for inheriting rental properties.
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Proposition 19 also applies to grandparent-grandchild transfers (under former Prop 193). The grandchild must still occupy the property as a primary residence, and both parents must be deceased for the transfer to qualify.
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Transfers between spouses (or registered domestic partners) do NOT trigger reassessment under Prop 19 or prior law. The surviving spouse retains the deceased spouse's assessed value.
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| Scenario | Tax Result | |---|---| | Arm's length sale | Full reassessment to sale price (new base year) | | Parent → child (primary residence, FMV ≤ parent basis + $1M) | No reassessment | | Parent → child (primary residence, FMV > parent basis + $1M) | Partial reassessment of excess | | Parent → child (investment/rental/vacation home) | Full reassessment | | Spouse/RDP transfer | No reassessment | | Grandparent → grandchild (meets conditions) | Same as parent-child rules above |
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Proposition 19 also expanded the ability of homeowners 55 or older, severely disabled, or victims of natural disasters to transfer their low property tax basis to a replacement home:
This is a significant benefit for seniors downsizing or moving after a wildfire — they can transfer their Prop 13 assessed value to the new home statewide.
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Quiz Questions:
Q1. A parent in Palo Alto passes away. Her home has an assessed value of $600,000 and a current market value of $3.2M. Her son inherits the home. Under Proposition 19, what is the son's assessed value if he moves in as his primary residence within 1 year?
A) $600,000 — he gets the full parent's basis B) $1,600,000 — parent's basis ($600K) plus the $1M cap C) $3,200,000 — full reassessment regardless of occupancy D) $2,200,000 — FMV minus the $1M exclusion
Answer: B — Under Prop 19, the child's new base year value is the parent's assessed value ($600,000) plus $1,000,000 maximum exclusion = $1,600,000 ceiling. The FMV ($3.2M) exceeds the ceiling by $1.6M, so the excess above the ceiling ($3.2M - $1.6M = $1.6M) is added. The new assessed value = $600,000 + $1,000,000 = $1,600,000. (Alternative calculation: FMV $3.2M - $1M threshold = $2.2M? — No. The correct Prop 19 formula: new taxable value = parent's factored base year value; if FMV exceeds parent's assessed value by more than $1M, the assessed value = FMV minus $1M. So $3.2M - $1M = $2.2M.)
Correct Answer: $2,200,000 — Under Prop 19, the new assessed value = FMV ($3.2M) minus $1M exclusion = $2.2M. Still a significant increase from $600,000 but less than full reassessment.
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Q2. A parent owns a rental duplex in San Diego with an assessed value of $250,000 and current market value of $1.8M. She leaves it to her daughter, who plans to keep it as a rental and not occupy it. What is the daughter's assessed value under Prop 19?
A) $250,000 — the parent's basis transfers B) $1,250,000 — parent's basis plus $1M C) $1,800,000 — full reassessment to FMV because it is not the daughter's primary residence D) $750,000 — average of assessed value and FMV
Answer: C — Under Prop 19, the parent-child exclusion is available ONLY for the transferee's primary residence. Because the daughter is keeping the duplex as a rental investment and not occupying it as her primary home, there is no exclusion — the property is fully reassessed to its current fair market value of $1,800,000.
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Q3. A 62-year-old homeowner in Sacramento owns a home with a Prop 13 assessed value of $180,000 and current value of $1.5M. She wants to buy a new primary residence in San Francisco for $2.8M. Under Prop 19's portability provision, what happens to her tax basis?
A) She cannot carry her basis because she is moving to a higher-value replacement B) She can transfer her $180,000 base year value statewide; for a higher-value replacement, her new assessed value = FMV of new home minus the difference between old FMV and old assessed value C) She can only carry her basis if the new home is worth $1.5M or less D) She can carry her basis but only once during her lifetime and only within the same county
Answer: B — Prop 19 expanded portability for 55+ homeowners to be statewide (any county) and applicable to higher-value replacements (with partial adjustment). The formula: new assessed value = FMV of replacement minus (old home FMV minus old assessed value). Specifically: $2.8M - ($1.5M - $180K) = $2.8M - $1.32M = $1.48M assessed value on the new home.
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Q4. How many times can a qualifying homeowner (age 55+) use the Prop 19 portability benefit?
A) Once per lifetime B) Once per county C) Up to three times in a lifetime D) Unlimited uses after age 55
Answer: C — Proposition 19 expanded the portability benefit to allow qualifying homeowners (55+, severely disabled, natural disaster victims) to use the base year value transfer up to three times over their lifetime. Prior law allowed only one use.
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Q5. Which of the following best describes the overall effect of Proposition 19 on California families inheriting real estate?
A) Prop 19 expanded tax benefits by allowing families to inherit any property with low assessed values B) Prop 19 restricted the parent-child exclusion, resulting in higher property tax burdens for inherited investment and vacation properties, while expanding portability benefits for seniors and disaster victims C) Prop 19 eliminated reassessment for all family transfers between parents and children D) Prop 19 reduced property taxes for all inherited properties to 50% of FMV
Answer: B — Prop 19 had a dual effect: it restricted the parent-child exclusion (now only primary residence, with value cap), which significantly increases taxes on inherited rental and vacation properties; and it expanded senior/disaster portability statewide with up to three uses. Net effect: most families pay more property tax on inherited non-primary-residence properties.