California SB 726: Exemptions, Prop 19 Transfers, and Penalties

California property tax exemptions can trim a modest amount off a typical homeowner’s bill or, for disabled veterans and qualifying nonprofits, eliminate the bill entirely. The most common is the homeowners’ exemption, which reduces assessed value by $7,000 and saves about $70 a year at the state’s standard 1% base rate.¹ Beyond that, the disabled veterans’ exemption, the welfare exemption for nonprofits, and Proposition 19 base-value transfers each do something different, and each has its own rules.

Homeowners’ Exemption

If you own and live in your home as your principal residence on January 1 of the tax year, you qualify. The exemption reduces assessed value by $7,000, which translates to roughly $70 in annual tax savings. Rental properties, vacation homes, second residences, and vacant or under-construction dwellings do not qualify.²

File form BOE-266 with your county assessor. It’s a one-time filing. Once granted, the exemption stays in place until you sell, move out, rent the home, or convert it to a second home, at which point you’re required to notify the assessor in writing.²

For a new purchase, the deadline for the full exemption is February 15 for the fiscal year beginning July 1.¹ File between February 16 and December 10 and you’ll receive 80% of the exemption, a $5,600 reduction.³ After December 10, the exemption is gone for that fiscal year.

Disabled Veterans’ Exemption

The disabled veterans’ exemption is far more valuable than the homeowners’ exemption and often zeroes out the property tax bill. For the 2026 assessment year, it reduces assessed value by either $180,671 or $271,009 depending on income.⁴ The amounts adjust annually for inflation under Revenue and Taxation Code Section 205.5.

Basic exemption of $180,671 is available to all qualifying veterans regardless of income.
Low-income exemption of $271,009 applies when total household income is $81,131 or less for 2026.⁴

To qualify, the veteran must be rated 100% disabled or 100% unemployable due to a service-connected injury or disease, and must have received a discharge under conditions other than dishonorable. The home must be the veteran’s principal residence on January 1 of the tax year. Unmarried surviving spouses of qualifying veterans are also eligible, even if the veteran never claimed the exemption during their lifetime, provided the veteran would have qualified or died from a service-connected cause.⁵

You cannot claim both the homeowners’ exemption and the disabled veterans’ exemption on the same property. The veterans’ exemption is worth far more, so any qualifying veteran should claim it instead.

Welfare Exemption for Nonprofits

The welfare exemption can eliminate property taxes entirely for qualifying nonprofits using property exclusively for charitable, religious, hospital, or scientific purposes.⁶ It demands more paperwork and ongoing compliance than any other California property tax exemption.

An organization must satisfy all four of these conditions. It cannot operate for profit, and no part of its net earnings can benefit any private individual, officer, or shareholder. The property must be used exclusively for the qualifying exempt purpose; ownership by a nonprofit alone is not enough. The organization must hold a current tax-exempt letter from the IRS or the California Franchise Tax Board. And its formation documents must irrevocably dedicate the property to the exempt purpose, with assets transferring to a similarly purposed entity on dissolution.⁷

The application has two steps. The organization first obtains an Organizational Clearance Certificate from the Board of Equalization by filing form BOE-277.⁸ It then files form BOE-267 with the county assessor for each property. Unlike the homeowners’ exemption, the welfare exemption requires annual filing by February 15 to maintain the full exemption.⁶

Proposition 19 Transfers

Proposition 19, phased in beginning in 2021, created two ways to carry a property’s low tax base to another property. These are not exemptions, but they can prevent a reassessment that would otherwise send a tax bill sharply higher after a move or an inheritance.

Parent-to-Child and Grandparent-to-Grandchild Transfers

Under Revenue and Taxation Code Section 63.2, a parent can transfer a family home to a child without a full reassessment, but only under specific conditions. The home must have been the parent’s principal residence, and the child must move in and use it as a principal residence within one year of the transfer. The child must also file for the homeowners’ or disabled veterans’ exemption within that same year. If the child ever stops living there as a primary residence, the property gets reassessed at current market value.⁹

There is also a value cap. If market value at transfer exceeds the existing assessed value by more than an inflation-adjusted amount, the excess is added to the tax base. For transfers between February 16, 2025, and February 15, 2027, that threshold is the factored base year value plus $1,044,586.¹⁰ A home with a $200,000 assessed value and a $2 million market value would see a partial increase: the child would not pay taxes on the full $2 million, but would not keep the parent’s base entirely either.

The exclusion also applies to family farms. Grandparent-to-grandchild transfers qualify only when the grandchild’s parent (the grandparent’s child) is deceased. Transfers between siblings do not qualify.¹¹ To claim the exclusion, file form BOE-19-P with the county assessor within three years of the transfer or before the property is sold to a third party, whichever comes first.⁹

Base Year Value Transfers for Homeowners 55 and Older

If you are 55 or older and sell your primary residence, Proposition 19 lets you transfer your current tax base to a replacement home anywhere in California, up to three times in your lifetime.¹² Before Proposition 19, this benefit was limited to certain counties and could be used only once.

You must be 55 or older when you sell the original property. The replacement must be purchased or newly built within two years of the sale. Both the original and replacement homes must qualify as your primary residence and be eligible for the homeowners’ or disabled veterans’ exemption. Both transactions must involve real consideration; gifts do not qualify.

You can buy a more expensive replacement, but only up to the original home’s market value carries the old tax base. Any excess is taxed at current value. The comparison depends on timing. If you buy the replacement before selling the original, the replacement must be worth no more than 100% of the original’s market value for a full transfer. That rises to 105% if you buy within the first year after selling, and 110% if you buy within the second year.¹³ The same rules and three-use lifetime cap also apply to severely disabled homeowners of any age.

If You File Late

The February 15 deadline has different weight depending on which exemption you’re claiming. Homeowners’ exemption claims filed between February 16 and December 10 receive 80% of the exemption, or $5,600 instead of $7,000.³ After December 10, the exemption is lost for that fiscal year, though you can still file for the next one.

Nonprofits face higher stakes. The welfare exemption must be refiled annually by February 15 for the full 100% exemption.⁶ A late filing can leave the organization owing property tax for the year, which on a sizeable property can run into tens of thousands of dollars.

For Proposition 19 parent-to-child transfers, the one-year window to file the homeowners’ exemption controls whether the exclusion applies retroactively. Filing after one year does not forfeit the exclusion entirely, but it only applies going forward from the year of filing.⁹

Penalties for Improperly Claimed Exemptions

Claiming an exemption you don’t qualify for, whether by mistake or by design, triggers what California calls an escape assessment. The county assessor adds the exempted value back onto the tax roll and bills you for the taxes you should have paid, plus interest under Revenue and Taxation Code Section 506.¹⁴

How far back the assessor can go depends on how the improper claim happened. For standard escape assessments, the lookback is four years from July 1 of the assessment year the property escaped taxation. If the claim involved knowingly false or incomplete information, the Section 504 penalty applies and the lookback extends to eight years.¹⁴

Section 531.6 governs the homeowners’ exemption specifically. If the exemption was allowed because of an assessor’s error, interest is forgiven. If you submitted incorrect information knowing it was wrong, or simply failed to notify the assessor when you moved out or began renting the property, both the Section 504 penalty and interest apply.¹⁵ If your eligibility changes, notify the assessor promptly; a short written notice costs nothing, and years of back taxes with penalties cost a great deal.

1
California State Board of Equalization. Homeowners’ Exemption
2
BOE.ca.gov. Property Tax Savings: Homeowners’ Exemption
3
Orange County Assessor Department. Homeowners’ Exemptions
4
BOE.ca.gov. LTA 2025/014 – Disabled Veterans’ Exemption Increases for 2026
5
BOE.ca.gov. Disabled Veterans’ Exemption
6
Board of Equalization. Property Tax Welfare Exemption
7
California Legislative Information. California Revenue and Taxation Code 214
8
California State Board of Equalization. Claim Forms for Organizational Clearance Certificate – Welfare Exemption
9
California State Board of Equalization. Proposition 19
10
BOE.ca.gov. Proposition 19
11
BOE.ca.gov. Taxpayers’ Rights Advocate Information Sheet – Property Tax Savings: Transfers Between Parents and Children
12
Homeowners – Proposition 19. Proposition 19 – LA County Assessor
13
sjgov.org. Base Year Age 55 and Older
14
Justia Law. California Revenue and Taxation Code 531-538
15
Justia Law. California Revenue and Taxation Code 531-538