Since Prop 19 California went into effect in 2021, it has transformed how parent to child transfer of real property is taxed. For families in San Diego and throughout the state, understanding how property tax reassessment works under Prop 19 is essential — especially when your family home or rental property is part of an estate plan.
With proper trust strategy, you can still preserve favorable tax rates and manage exclusion limits wisely.
Under the old regime, many parents could pass on real property — whether it was a primary residence, vacation home, or rental property — to children without triggering reassessment under Proposition 58/193. However, Prop 19 imposes tighter conditions: only a family home (or qualified family farm) can qualify, and even then only if the child makes it their primary residence. If the property is reassessed, the increased tax burden can be dramatic — especially on appreciated real estate in San Diego.
A smart living trust strategy may help safeguard against these outcomes.
What changed under prop 19
One of the biggest shifts under Prop 19 is in the family home rules. Now, for the parent‑to‑child exclusion to apply, the primary residence requirement must be met both before and after the transfer. In other words, the parent must have used the property as their principal residence, and the child must live in it as their main home within one year of the transfer.
Another change is around base year value and how value is capped. Under Prop 19, only up to $1 million above the current taxable value (factored base year) is excluded from reassessment. Any excess market value beyond that gets reassessed. This makes familiarity with cap/limit concepts, indexed annually, and staying current vital.
Timing and filing deadlines also matter. The claim for reassessment exclusion (using form BOE‑19‑P) must typically be filed within three years of transfer (or before transferring to a third party). In order for the child to qualify, they must also file for the homeowners’ or disabled veterans’ exemption within one year of transfer.
Documentation is key: records showing residency, the county assessor may request trust documents, deeds, and exemption claims.
Importantly, transfers of rental property or vacation homes no longer qualify under Prop 19’s parent‑child exclusion. Only the primary residence or family farm qualifies now.
Trust & title strategies
Given the tighter constraints under Prop 19, your living trust title and trust structure play a critical role in achieving favorable tax outcomes when transferring property to heirs.
One approach is co‑ownership with kids while parents are living, so that when property passes, the reassessment trigger is managed. That said, be cautious: co‑ownership alone does not guarantee protection under Prop 19 unless the child meets the primary residence requirement.
Another alternative is forming an LLC vs Trust holding structure. In some cases, real estate held in a family LLC can offer flexibility, but the trade-off is losing some reassessment protection so proper coordination with your trust and tax adviser is paramount.
In order to maintain eligibility, keeping residency proof is necessary (e.g., voter registration, driver’s license address, and utility bills in the child’s name). If the child moves out permanently, the assessor may trigger a reassessment.
A successor trustee guidance provision in the trust is advisable: the successor trustee should understand the Prop 19 constraints and manage real estate conveyances and exemptions at the appropriate time.
Finally, close CPA coordination is necessary. At points where the tax basis and reassessment interplay with gift tax, capital gains, and income tax, a CPA can help model the numbers, especially in high‑value San Diego real estate markets.
If you wish to explore how Prop 19 and a trust-based strategy might affect your San Diego family property, please contact us for a consultation tailored to your unique needs.