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Horizon Elder Law & Estate Planning Blog

Tuesday, September 25, 2018

California Children Could Benefit from Tax Laws on Inherited Property

What properties are eligible for a tax-free transfer in California?

California currently boasts several tax laws that could greatly benefit children who inherit property from their parents. State laws are protecting children from tax increases on inherited homes, which is thought to be impacting the availability of housing in the state. The California tax break, which was passed in 1986, allows parents to transfer their primary residence to their children. The transferred home will not need to be reassessed for property tax reasons. This law, particularly in the state of California where so many houses are held in families for generations, could save children potentially tens of thousands of dollars. Our San Ramon, California tax saving planning attorneys explore the tax-free transfer laws in the state below.

Tax Shelter Laws

Proposition 58 excludes property transfers between spouses from reassessment. It further excludes transfers between parents and children of their primary residence valued at up to one million. Transfers can occur before or after the death of the parent. Additionally, Proposition 193 exempts transfers between grandparents and grandchildren. This exemption is limited, however, to situations in which the grandchildren’s parents are predeceased.

Per Proposition 58, children inheriting a parent’s primary residence will be excluded from reassessment with no dollar amount on the exclusion. The child is free to rent out the property, which will not trigger a reassessment. However, should the home be placed for sale or should one child wish to sell his or her shares in the home, the home or shares will be reassessed for tax purposes.

Parents in California should closely research Proposition 58 and related tax laws to take advantage of current tax shelters. Some lawmakers have indicated a desire to eliminate or reduce the tax shelter law in the coming years. As such, now is the time to take advantage. Parents will want to consider whether their children desire to keep the home before making any transfers, as the law only benefits the family if the home remains the property of the children. At times, where one child wants the home and another wants to sell, it may be best to leave the home to one child and other property to the remaining children. Contact an estate planning attorney for more information on how you could benefit from the tax shelter laws in California.


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