By Judd Matsunaga, Esq.
Last month (Rafu Shimpo, “As Baby Boomers Age,” July 18, 2025), I cited a quote from Dear Abby, i.e., “There are really only three types of people: (1) those who make things happen; (2) those who watch things happen; and (3) those who say, ‘What happened?’” This Rafu Shimpo article is a second attempt to get more Rafu readers into the middle group, i.e., observing events as they unfold, potentially learning and gaining insights and information so they can be better prepared for the future.
So here’s what has been happening when it comes to California property tax law. On June 6, 1978, California voters overwhelmingly approved Proposition 13, a property tax limitation initiative. This amendment to California’s Constitution was the taxpayers’ collective response to dramatic increases in property taxes and a growing state revenue surplus of nearly $5 billion.
Proposition 13 rolled back most local real property, or real estate, assessments to 1975 market value levels, limited the property tax rate to 1% plus the rate necessary to fund local voter-approved bonded indebtedness, and limited future property tax increases.
In 2016, California passed Proposition 58, which allowed for the exclusion of certain parent-child property transfers from reassessment for property tax purposes. Proposition 58 allowed parents to transfer their primary residence and up to $1 million of other real property to their children without triggering a reassessment of the property’s value for property tax purposes.
This meant the children could inherit the lower property tax base of their parents, rather than facing potentially higher taxes based on the current market value.
Then came Proposition 19, passed by California voters in November 2020 and effective in stages starting Feb. 16, 2021, and April 1, 2021, which significantly alters two key aspects of California property tax law. Prop 19 modifies the ability to transfer a principal residence or family farm between parents and children (or grandparents and grandchildren under limited circumstances) without reassessment.
Younger politicians, who weren’t around in 1978 when Prop 13 was passed, didn’t think it was fair that one house is paying $1,800 per year in property taxes under Prop 13 while the identical house across the street is paying $12,000 per year. Same police department, same schools, same street improvements, etc. So they are looking at eliminating Prop 13 to increase government revenue to fund their “pet projects.”
In most states, property taxes represent a greater proportion of revenues than income taxes. It’s reversed in California due to Proposition 13.
You might remember that back in 2020, we had a record-setting year for California wildfires. Prop 19 was backed by the California Association of Realtors (CAR), who spent over $50 million advertising on TV commercials as “California wildfire victim property tax relief.” Since nobody would be against helping somebody who had their house burn down, Prop 19 passed.
What voters didn’t know was that at the bottom of the bill, they were taking away some of the property tax benefits under Prop 13 and Prop 58.
So now (current law), to avoid property tax reassessment, the property must be the primary residence of the parent and become the primary residence of the child within one year.
Basically, CAR “pulled a fast one.” CAR wanted to make inherited property too expensive for children to keep, so they would be forced to sell — benefitting the real estate industry. Once the public realized what was happening, they tried to repeal Prop 19 but were not successful.
I believe that Prop 19 was just the first step of a two-step process to phase out Prop 13 altogether. Eventually, there will be no more Prop 13, and property taxes will be reassessed to fair market value on all changes (transfers) of ownership.
Here’s where “watching” things happen can make you better prepared for the future. If future laws eventually eliminates parent-child transfers altogether, it’ll be too late to do anything about property tax reassessment upon your death. So it might be a good idea to GIFT NOW under the existing law.
This only is a good idea when certain conditions are met. Normally, you don’t want to gift title to your home to your child while you’re alive. Your CPA will scream at you, saying, “You just blew your step-up in basis.” Transfer on death is the only time the IRS will forgive gain.
That’s why living trusts are the best estate planning device. Trusts not only avoid probate, but they transfer ownership of your home with a step-up in basis, i.e., a forgiveness of gain. So if your child(ren) sell the home after your death, they pay nothing (i.e., “ZERO”) in capital gains taxers because there is no gain.
But, if you have a child who lives with you and has no plans on selling your home after your death, who cares about the step-up (or lack thereof) in basis? In other words, you only have to pay capital gains tax if you sell the home. But if the child has no plans on selling the home after your death, you can gift title to your home now while Prop 19 still allows for no property tax reassessment.
Your property tax of $2,000 per year can be “locked in,” avoiding a $10,000-per-year increase in property taxes every year your child is alive. If your child saves $10,000 per year and lives another 30 years, $300,000 savings!!!
Next, here’s some good news — there’s a Prop 19 LOOPHOLE!!! As always, a major change in the law causes lawyers to figure out some way to get around it. Parents can actually transfer vacation homes and rentals to their children without incurring a property tax reassessment. I don’t claim to understand it completely, but it has something to do with a family LLC (limited liability company). Evidently, there are different rules for real estate owned by LLCs. And this is where we still have an opportunity to avoid future property tax reassessment.
For example, a parent can form an LLC and transfer the rental property into it. No reassessment occurs because – as a sole-member LLC – no change in ownership occurred. From the LLC, the parent can then transfer a 50% ownership interest to one of their children. Then after one or two years (to prevent a series of transfers from being treated as a single transaction), the parent again transfers the 50% to the second child, leaving both children in equal control of the real property without ever transferring more than 50%. And voila, no property tax reassessment has occurred.
The above example is only intended to provide a general idea of how this loophole can work. If you have a vacation home or rental property that the family wants to keep after you’re gone, this is something you might want to look into. So it would be a good idea to find a business law attorney as soon as possible to form and organize an LLCs to avoid property tax reassessment. Why? It takes multiple years to work.
According to one LLC attorney who gave a webinar for the Beverly Hills Bar Association, “Each situation is different; however, in general, we use a series of LLCs to systematically transfer the property to your children (or other beneficiaries) over a period of time.”
Each transaction avoids these detailed reassessment rules. The passing of Proposition 19 has not changed this opportunity. However, there is always a concern that the assessor may attempt to collapse all of these steps into one (referred to as the “step doctrine”) and reassess the property later. The ultimate solution will depend on the number of properties, number of beneficiaries, the value of your estate, and your need to keep the rental income for yourself.
Finally, the State Controller’s Property Tax Postponement Program allows homeowners who are seniors (62 years of age), or blind or disabled, to defer current-year property taxes on their principal residence. They must meet certain criteria, including at least 40% equity in the home and an annual household income of $53,574 or less (among other requirements). Under this program, property taxes would be paid by the state and the deferred payment would create a lien on the property.
Acceptance into the program will depend on availability of funding. An applicant must reapply each year in which postponement is desired, and demonstrate they meet the following criteria:
- Is at least 62 years of age, or blind, or disabled;
- Has a total household income of $53,574 or less, as defined in California Revenue and Taxation Code 20503;
- Owns and occupies the property as the principal place of residence;
- Has at least 40% equity in the property; and
- Does not have a reverse mortgage on the property.
Title to the property does not change. It stays in your trust and avoids probate and avoids Medi-Cal Recovery claims. The deferment of property taxes is secured by a lien against the property that must eventually be repaid — but not by you, and not due until after your death. All taxes postponed under PTP and interest become due and payable if the:
- Property is no longer the claimant’s principal place of residence;
- Claimant dies (and there is no approved surviving spouse);
- Claimant sells, conveys, or otherwise transfers the property;
- Claimant becomes delinquent on a senior lien;
- Claimant refinances or obtains reverse mortgage; or
- State Controller’s Office learns postponement was granted in error.
Applications become available in September 2025. During the filing period of Oct. 1 to Feb. 10, applications will be reviewed in the order received, based on the postmark date. Typical processing time is six to eight weeks depending on the volume of applications.
Applications will be approved and taxes postponed on a first-come, first-served basis, so it makes sense to apply on Oct. 1. If there are not enough PTP funds to cover all eligible applicants, the state controller will notify the applicants.
Once you’re approved the first year, you are not automatically approved the next year. To be eligible for the PTP program, a homeowner must apply and meet the PTP eligibility requirements each year. California law does not allow the State Controller’s Office to make exceptions for previously eligible applicants.
In conclusion, we’re not talking about big money. But if your property taxes are $5,000 per year, that’s saving $416 per month!!! What would you do with an extra $416 per month? It could mean joining a local community center and having lunch with your buddies a few more times each month.
Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.