Is there a loop hole around prop 19? Property taxes are often described as Californias third rail in Polictics. However in 2021, Prop 19 removed a long standing tax benefit to homeowners which allowed them to transfer their property tax assessement to their children. Not all hope is lost, you can still preserve your property tax assessment with the right legal strategy. There may still be a narrow pathway to property tax continuity despite Prop 19’s gutting of longstanding California law earlier allowing for parent-child transfers without reassessment. One such approach—commonly referred to as the “Prop 19 LLC workaround” or “Prop 19 workaround” or “Prop 19 loophole”.
California’s Proposition 19 dramatically reshaped the rules for passing down real estate between generations. For decades under Propositions 58 and 193, families could transfer primary residences—and even other properties (such as vacation homes and investment properties —to their children without triggering reassessment. But ever since Prop 19’s became law in February 2021, any real property transferred to your children will be reassessed to its market value unless the child moves into the home: uses that home their primary residence, and the value is below the threshold.
Many families in all nine Bay area Counties but particularlly Marin, San Francsico, San Mateo, Contra Costa, and Alemeda Counties had to sell their family homes upon inheritance as their property taxes increased dramatically.
Many families could not act before the deadline, but there are still some legal strategies that l offer a narrow pathway to preserve their low property tax assessment. Today we will be discussing the LLC Strategy/Property Tax LLC Strategy . The LLC strategy transfers ownership of real property through an LLC (limited laibliity company).
Before We Proceed, we need to understand what prop 13 is and why prop 19 created this problem.
What is Prop 13 California?
Proposition 13, which was passed overwhelmingly in 1978, amended the California Constitution by restricting property tax assessments to 1% of assessed value (plus some local additions by county). Counties could increase assessed value annually at a maximum rate of 2% a year. The result of this is even though real estate prices in California continued to skyrocket, the assessed value for tax purposes remained very low. For Example, a house bought for 150,000 in 1970, which is now worth 1,200,000.00 could only be assessed at 170,000.00.
Prop 13 allows the county to fully reassessed as property when a change of ownership occurs, either by death, gift, or sale. Also called a “transferr” or a under the tax code a “change in ownership.”
California Prop 58 Has Been Mostly Eliminated by Prop 19
In 1986, Proposition 58 passed, it excluded transfers from parents to children from reassessment. It also excluded the first $1 million of assessed value for any type of property transferred to children—including commercial and industrial properties—not just the family home.
Parents could then pass on their law tax rate on their home to their kids. For all other properties that aren’t the residence, the parents could combine their assessment exclusions and exempt $2 million in assessed value on their house. Which could them be transferred to their children. . In certain cases, grandparents could also transfer Prop 13 caps to grandchildren.
Later modifications even allowed people over 55 to take their Prop 13 caps with them to a new home, under limited circumstances.
As you can see, Prop 19 was a serious departure from previous property tax policy. Inheritance protections under Prop 58 have been overturn by Prop 19, but in exchange people over 55 could easily transfer their property tax basis’s to a new home.
The Parent to Child Prop 13 Exclusion Under Prop 19 California?
Children may still claim a limited exclusion from California property tax reassessments under Prop 19. Careful planning and coordination are required, using long term strategies, such as establishing and transferring real estate to an LLC for example. However there are certain rules then here are the rules, whether you give your child a home or they inherit it. Remember that this applies only to your principal residence:
How It Works: California’s Cummulative Transfer to an Entity Rules
Under California Revenue & Taxation Code (RTC) §64(c), property held by a legal entity like an LLC is reassessed when one person obtains control (i.e., more than 50% of ownership). Additionally, under RTC §64(d), if real property was previously owned by individuals and then transferred into an LLC without reassessment (typically under RTC §62(a)(2)), a “cumulative transfer” of more than 50% of those original co-owners’ interests also triggers reassessment.
The goal is to prevent a single party gaining majority control (more than %50 of the property), and prevent a cumulative transfers from exceeding 50% of originally co-owned property. With careful planning it may be possible to defer reassessment indefinitely, provided certain criteria are met.
This strategy can be done by either purchasing a property with an LLC or later transferring the property to an LLC. We will explore both.
1. Purchasing Real Estate Directly in an LLC
In order to use the LLC strategy most effectively, the property should be purchased by an LLC. Properties purchased directly by an LLC, are not subject to the “original co-owner” taint under RTC §64(d). This gives the owners greater flexibility and control in later transfers of LLC membership interests. As long as no one person ever acquires more than 50% ownership or control of the LLC, and all cumulative transfers stay under the 50% threshold, property tax reassessment can be avoided entirely.
This structure can be particularly attractive in all nine counties across the bay area. Buying through an LLC from the outset helps maintain planning flexibility for multi-generational holding strategies.
2. Transferring Real Estate into an LLC After Purchase
When a property you already-own is transferred into an LLC, the property may be subject to the “original co-owner” rules of RTC §64(d). Even if the initial transfer avoids reassessment under RTC §62(a)(2), any future cumulative transfer of more than 50% of those original ownership interests could later trigger reassessment.
Under this scenario, the government can look back at the history of transfers to determine when a cumulative transfer of more than %50 has occurred. <eaning even decades later, a gradual transfer to children or others could result in reassessment.
The origin of ownership matters. Property that was personally owned before being placed in an LLC is at greater risk and of reassessment, while property acquired directly by the LLC has greater protection from this rule.
This distinction is vital for property owners in appreciating areas like San Francisco, Marin , San Mateo, and Santa Clara, where tech booms drive home values up from 200k to 1M–$4M+++. The potential tax reassesments on these properties could be devastating to your children . Forcin them to selll due to exorbitant annual property tax bills