In simple terms, california prop 58 grants parents and children to exchange real estate with out triggering a property tax reassessment in some situations. read the following for additional details on proposition 58.
California Proposition 58 became an active law in California on 11/6/ 1986. Proposition 58, permits the exclusion for reassessment of property taxes on real estate transfers between parents and children when specif legal requirements are satisfied.
In the State of California, real estate or real property is reassessed at market value if it is sold or transferred. Because of California Proposition 13, at the time of property tax reassessment, a homes property taxes can sometimes increase dramatically making the home unaffordable for the person inheriting it. This was the reason for California Proposition 58. Proposition 58, states that if the sale or transfer of real estate is between a parent and their child, under limited circumstances, the property will NOT be reassessed, providing certain conditions are met and the application is filed in an appropriate amount of time.
additional information regarding california prop 58 – exclusion for property tax reassessment.
California Proposition 58 allows the new property owner to avoid property tax increases when acquiring property from their parents. The new owner’s taxes are instead calculated on the established Proposition 13 factored base year value, as opposed to the current market value.
It is important to be aware that there are some limitations to California Proposition 58. For instance, on non primary residences transfers, you are limited to the first $1 million of real property. The $1 million exclusion applies separately to each eligible transferor. These transfers may be the result of a sale, gift, or inheritance. A transfer via a trust also qualifies for this property tax reassessment exclusion.
Proposition 58 also has limitations for who is eligible to receive property tax benefits. A “child” for purposes of Proposition 58 includes any child born of the parent(s), any step-child while the relationship of step-parent and step-child exists, any son-in-law or daughter-in-law of the parent(s), and any adopted child who was adopted before the age of 18. Spouses of eligible children are also eligible until divorce or, if terminated by death, until the remarriage of the surviving spouse, step-parent, or parent-in-law.
There are some additional factors that are important to California Proposition 58 eligibility. For instance, the acquiring beneficiary can’t lend money to the trust when funds are needed to make an even distribution of the trust. The reason why is that the act is viewed as a child buying out another child as opposed to a parent to child property transfer. The child would no longer be eligible for the exclusion of property tax reassessment because the exclusion for reassessment requires a transfer be from parent to child.
Commonly, the only option in situation like this is for the trust to take out a mortgage on real estate located in the trust to supply the trust with the cash needed to make an even distribution. This is not as simple as it sounds. The acquiring beneficiary does not own the property because the real estate is held in the trust. Almost all conventional lenders are opposed to lending to trusts. They will typically ask the trustee to put the title in the name of the acquiring beneficiary before funding their loan. If this is done before the even distribution of the trust, the exclusion for reassessment will usually be denied. Commercial Loan Corporation can help in this situation. Commercial Loan Corporation is one of just a handful of California Lenders who are willing to provide loans to trusts.