Transcript:
Easan Arulanantham:
How does prop 19 affect the transfer of my house to my son?
Tom Vaughan:
Yeah, to sign, okay. So this was really interesting, obviously, with Prop 19. When you transfer your home to your beneficiaries, there is it’s like the sale was done, again, in terms of property taxes. So if you bought the house for 200,000, and now it’s worth 3 million or something, you’re, you know, your property taxes might be quite low. But if it’s now revalued at 3 million, property taxes would jump up a lot. And so your son now has to pay a lot more property taxes than you do. That could be a problem, depending on how much money your son has or what other money you might be leaving him, right. Whether he could afford it, there is a step up and basis on the house. So you paid 200 And you pass away, and it’s worth 3 million, the step up and basis would go all the way to 3 million if your son had to sell the home, they could do it without any capital gains tax or you know, roughly at that point in time. But there is a million dollar exclusion, right, as long as your son lives in that home. And basically, if it was a $3 million house, they’d look at it as if it was a $2 million house. And for property tax purposes. I think you were telling me son that they have to live there. And soon as they stopped living there, it actually goes back up. Is that correct?
Easan Arulanantham:
Yeah, it’s only a temporary thing. As long as you’re it’s your primary residence, you would, you would then pay it so like, say, but you could also switch say your brother, a brother and sister inherited one person could live there as a primary residence. Oh, and then you say that person moves out but the sister moves in, you could then still keep that taxpayer keep. So that million dollar minus? Yeah, that million dollar rhinos. So essentially, the way they do the calculation is they would they take it’s essentially you have a $2 million basis now. And that’s the basis that grows now. So it’s rough, because growing from 100,000, at 2% each year versus 2,000,002% of yours a big difference.
Tom Vaughan:
Yeah. Right. And you’re telling me that if the house is worth less than a million dollars, and you’re getting a million dollar exclusion, then the property taxes just stay the same? Is that correct?
Yeah. And it’s Yeah, so you don’t have any change? If you have a sub million dollar house, or the difference between the basis and the houses value is less than a million dollars?
We’re using rough, rough guidelines here. There’s a lot of details, but I don’t want to bore you to death with the details. But that’s a good question. That’s interesting.
Easan Arulanantham:
Yeah, it’s really rough. Because previously, prop 13 allowed you for your private residence, you could transfer that basis with unlimited exclusion. So I could have $100,000 and a $3 million house, and I could still transfer 100,000 to my child, which is like a massive difference. Yeah. And then also for investment properties with Prop 19 investment properties or any kind of like other properties outside your primary residence. They’re not, there’s no exclusion for them. So previously, you had a million dollars that you could basis, that old basis that you could pass to that your next your beneficiaries, and they would keep that basis, but now they just get reassessed at market value.
Tom Vaughan:
Yeah. So that’s gonna be, it’s gonna be really interesting. There’s I think that laws been very unwelcome, within my clientele, get a lot of questions about it, and people are not real happy, especially the way it was presented prior to the election. I think there’s some pieces there that people didn’t really realize there are a couple of things running around out there where they’re trying to reverse this with another bill that might end up on the ballot. So we’ll see hopefully, something does get improved here because it’s not as good as it was. And so it was designed to make people rotate homes, you know, which is what the realtors want that wrote these things, but that’s not really the objective of all the time within my clientele, that’s for sure.