Property Taxes | Real Estate Attorneys in Roseville, CA

Understanding California Property Taxes

California’s property tax system is governed primarily by Proposition 13, a constitutional amendment approved by voters in 1978 that fundamentally reshaped how real property is taxed in the state. Under Proposition 13, a property’s assessed value is generally limited to its purchase price, with annual increases capped at two percent—except when the property is sold or transferred to a third party, which triggers a reassessment to current fair market value.

For property owners who have held their homes or investment properties for many years, Proposition 13 protections can produce significant savings compared to current market value assessments. However, when those properties are transferred—whether by sale, gift, or inheritance—careful planning is required to avoid unnecessary reassessment.

Reassessment Exclusions Under California Law

California law provides several exclusions from reassessment that allow property to transfer without triggering a new assessment to current market value. Understanding and properly filing for these exclusions is essential to avoiding unintended property tax consequences. Key exclusions include:

• Parent-Child Exclusion (Proposition 19): Transfers of real property between parents and children may qualify for a partial or full exclusion from reassessment. However, Proposition 19, which took effect in February 2021, significantly narrowed this exclusion compared to prior law. The exclusion is now limited to a principal residence and subject to a value cap. Transfers of investment properties, vacation homes, and rental properties between parents and children are generally no longer excluded.

• Grandparent-Grandchild Exclusion: Under Proposition 193, transfers from grandparents to grandchildren may qualify for a reassessment exclusion, provided that the grandchildren’s parents—who are the children of the grandparents—are deceased as of the date of transfer.

• Transfers Between Spouses: Transfers of real property between spouses generally do not trigger reassessment, including transfers incident to divorce.

• Transfers Into and Out of Trusts: Transfers of real property into a revocable living trust and certain other trust transfers may qualify for exclusion from reassessment, depending on the nature of the trust and the identity of the beneficiaries.

These exclusions are not automatic. They must be timely filed with the county assessor’s office. Failure to file in time can result in the loss of the exclusion.

Property Taxes and Real Estate Transactions

Any sale or transfer of real property in California typically triggers a reassessment to current fair market value, which can significantly increase property tax liability for the new owner. Buyers should factor anticipated property taxes into their purchase analysis. Sellers and buyers engaged in non-arm’s-length transactions—such as transfers between family members or transfers into business entities—should consult with a real estate attorney before proceeding to evaluate available exclusions.

Entity Transfers and Property Tax Considerations

Transfers of real property into or out of legal entities such as corporations, partnerships, or LLCs can trigger reassessment if they result in a change in ownership under California law. Planning entity transfers to minimize property tax consequences requires a careful analysis of ownership percentages, entity structures, and applicable exclusions.