Proposition 13: Property Tax Limitations
Constitutional Basis and Enactment
Proposition 13, enacted in 1978, is codified in Article XIII-A of the California Constitution. It emerged in response to dramatic increases in property taxes, driven by soaring real estate values in the 1970s. This initiative aimed to stabilize taxes for property owners, safeguarding property affordability.
Key Provisions
1. Property Tax Rate Cap:
- Under Article XIII-A, Section 1(a), the initial property tax rate is fixed at 1% of the property’s value at the time of purchase.
2. Annual Assessment Increase Limit:
- Article XIII A, Section 2(b) restricts assessed value increases to 2% annually, regardless of market-driven appreciation.
3. Change in Ownership Reassessment:
- Article XIII A, Section 2(a) mandates a reassessment of property to its current market value upon a change in ownership or significant new construction.
Misconceptions
Proposition 13 does not protect property inherited by children or grandchildren from tax reassessment. Exclusions, such as those provided under Propositions 58 and 19, must be applied for to preserve the original tax base.
Proposition 58: Parent-to-Child Transfers
Constitutional Basis and Enactment
Proposition 58, ratified in 1986, amended Article XIII A, Section 2(h) of the California Constitution. It expanded Proposition 13 protections by excluding qualifying parent-to-child property transfers from reassessment, ensuring the retention of low tax rates across generations.Proposition 58 is codified at Revenue & Taxation Code §63.1.
Key Provisions
1. Parent-to-Child Exclusions:
- Primary residences transferred between parents and children were excluded from reassessment, regardless of property value.
- Up to $1 million in assessed value for other properties could also be excluded from reassessment per parent.
2. Eligibility and Processes:
- Transfers had to meet specific criteria (e.g., direct transfers between parents and children). Grandparent-to-grandchild exclusions were allowed only if both of the grandchild’s parents were deceased (addressed under Proposition 193).
3. Application Deadline:
- Beneficiaries were required to file a timely Claim for Reassessment Exclusionunder Revenue and Taxation Code § 63.1.
Proposition 19: A New Era in Property Tax Exclusions
Constitutional Basis and Enactment
Proposition 19 was approved by California voters in November 2020 and came into effect for transfers on or after February 16, 2021. It repealed and replaced Proposition 58, introducing stricter eligibility requirements for tax reassessment exclusions under Article XIII A, Section 2(i). Proposition 19 is codified at Revenue & Taxation Code §63.2.
Key Changes
1. Limitation to Primary Residences:
- Under Proposition 19, reassessment exclusions apply only to primary residences—property in which the transferee resides as their own primary residence within one year of the transfer.
2. Value Limitations:
- Tax exclusions are capped at $1 million above the assessed value. Any assessed value over this threshold triggers reassessment.
3. Grandparent-to-Grandchild Transfers:
- Like parent-to-child exclusions, grandparent-to-grandchild benefits are restricted to primary residences. Both parents of the grandchild must be deceased to qualify.
4. Elimination of Non-Primary Residence Exclusions:
- Transfers of second homes, rental properties, and vacation homes no longer qualify for exclusion from reassessment under Proposition 19.
5. Portability for Seniors:
- Seniors (55+), disabled homeowners, and disaster victims can transfer their existing property tax base to a replacement home anywhere in California, up to three times.
Comparison of Revenue & Taxation Code § 63.1 and § 63.2
Provision | § 63.1 (Proposition 58) | § 63.2 (Proposition 19) |
Eligible Properties | Primary residences; $1M other property | Primary residences only, no others allowed |
Occupancy Requirement | No occupancy requirement | Transferee must occupy as primary residence |
Value Cap | No cap for primary residence; $1M cap on others | $1M cap on values exceeding the assessed base |
Grandparent Transfers | Allowed if both parents deceased | Stricter rules: residence & evidence requirements |
Conclusion
California property tax rules under Propositions 13, 58, and 19 illustrate an evolving approach to equitable taxation while preserving benefits for homeowners. Proposition 13 provides stability by capping tax increases while Propositions 58 and 19 address intergenerational tax considerations. However, these laws remain narrowly restrictive in their applicability, requiring beneficiaries to scrutinize property qualifications, filing deadlines, and compliance closely.
Property owners must stay informed about eligibility requirements, tax reassessment triggers, and filing deadlines under the revised framework. Each program plays a distinct role within the broader system of stabilizing taxation while enabling intergenerational wealth preservation, with important limitations.
None of the information contained in this blog post constitutes legal advice from Young & Chic LLP. Tax laws can be confusing, and making an incorrect election on a tax form relating to your real property can have devastating financial consequences. We recommend setting up a free 15-minute consultation with one of our experienced attorneys to discuss your unique situation so we can formulate a plan to address your needs.
References
1. California Constitution, Article XIII A, Sections 1-2
2. Revenue and Taxation Code §§ 60-69.5
3. Legislative Analyst’s Office on Propositions 13, 58, and 19
4. California Board of Equalization—Property Taxes Resources