Proposition 58 & Transferring Real Estate
Over thirty years ago, Proposition 58 passed, providing property owners with the ability to transfer real property in Silicon Valley, Santa Cruz County and beyond between spouses, parents and children while maintaining the same tax basis.
Typically, when a property changes hands, the property tax changes based on the current market value paid for the home. Other propositions, including Prop 13, Prop 60 and Prop 90, all work to assist homeowners in maintaining lower property tax levels. Prop 58 is another that is worth understanding if you plan to bequest or transfer real property to your children (biological, step or adopted) or parents.
To take advantage of Proposition 58, real property must be transferred between spouses, domestic partners or between parents and children or children and parents. The property can be conveyed as an inheritance, a court order, or in the form of a deed, to name a few.
There are two types of real estate that can be transferred, your principal residence and all other types of real estate, including investment or business property. When a primary residence is reassigned to an applicable person, such as a spouse or child, that property retains its Prop 13 tax status and is NOT reassessed at the current market value of the home. This means that the new owner will retain the same property tax basis that the prior owners enjoyed.
Proposition 58 also does not require that the recipient of the acquired real estate use the property, especially if it is a residence, as their primary dwelling to take advantage of this tax relief.
All other property that is not the primary residence has a maximum transferrable tax value limit of $1,000,000. Since each property owner holds a $1,000,000 exclusion, these can be combined for a single property for a maximum of $2,000,000.
To take advantage of Prop 58, a claim must be filed with the County Recorder’s office. According to the Cal Assessor and Santa Clara County Assesor’s websites, current law requires that the claim form BOE-58-AH be filed within three (3) years after the date of the transfer of real property or prior to the transfer of the real property to a third party, whichever occurs first. However, even if a claim is not made within this three year filing period, a claim is still considered timely if it is filed within anytime prior to or within six (6) months after the mailing date of a Notice of Supplemental Assessment or Notice of Proposed Escape Assessment, whichever is later. For example if a taxpayer received a Notice of Supplemental Assessment for a parent-child transfer dated January 1, 1994, and then received a Notice of Proposed Escape Assessment dated April 1, 1994, the taxpayer would have six (6) months from April 1, 1994 to file a claim with the Assessor.
Effective January 1, 1998, in general, except where the property has already transferred to a third party, a Proposition 58 application will be allowed at any time the claim is filed after the conclusion of the above filing periods. (An exception to this rule is when a Proposition 58 application filing results in an escape or supplemental assessment and a third-party transfer has occurred.)
It is beneficial to file all necessary forms as soon as possible because the transfer of the real estate and its associated property tax basis MUST be officially applied to the new owners. Until it is, the property taxes will be assessed at the market value of the property. There are no retroactive refunds for taxes already paid.
For more information on Proposition 58 as well as information on how to properly fill out the form, click here.
For a copy of the claim form BOE-58-AH, click here.
The Dawn Thomas Team encourages you to always check with your legal and financial advisors before making any significant decisions regarding your real estate holdings. This enables you to understand the impacts of your decisions as well as the best manner in which to disperse property and what that entails.