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In addition to this Year-End Tax Planning article, which discusses many of the provisions of the One Big Beautiful Bill Act, here is a Chart that compares current tax laws with the new changes along with the effective dates.  

In addition to this Year-End Tax Planning article, which discusses many of the provisions of the One Big Beautiful Bill Act, here is a Chart that compares current tax laws with the new changes along with the effective dates.  

Proposition 19 (Prop 19) was passed in California in 2021, and contains two relevant changes in California property tax assessments that may impact your estate planning. To ensure that you are not unaware of or adversely impacted by these changes, here is a summary of relevant planning information for your review.

Proposition 19 (Prop 19) was passed in California in 2021 and contains two relevant changes in California property tax assessments that may impact your estate planning. To ensure that you are not unaware of or adversely impacted by these changes, below is a summary of relevant planning information for your review.

Changes to the Transfer of Taxable Value for Certain Property Owners

Prop 19 expands the class of people who qualify for a transfer of their taxable value (i.e., property tax assessed value) from their current home to a new property.

Under prior law, only homeowners over 55 years of age or certain disabled persons could make use of this benefit one time during their lifetime. And they could do so only if (1) their new home is in the same county as their old home or in a few other select counties, (2) the value of their new home is less than or equal to the value of their old home, and (3) the sale and new purchase were done within a two year period.

The new law, which took effect on April 1, 2021:

• Expands the class of homeowners who are able to transfer their taxable value to include victims of wildfire or other natural disasters, regardless of age or disability status;
• Permits homeowners to take advantage of this provision three times during their lifetime.
• Removes the restriction that the replacement home must be in the same county as the old home. Now such replacements must simply be in the state of California.
• Allows homeowners to buy a replacement home that is worth more than their old home, provided, however, that the increase in value is added to the transferred taxable value of the old home. For example, assume a homeowner is over 55. Her house has a taxable value of $500,000. She sells it for $3,000,000. If she buys a new home anywhere in California for $3,000,000 or less, she can transfer her $500,000 taxable value to the new home, and it will become its taxable value. However, if she wants to upgrade to a $5,000,000 home, her new home's taxable value will be $2,500,000 – the taxable value of her old home transferred ($500,000) plus the upgrade value ($5,000,000 - $3,000,000.)

The new law keeps the two-year window requirement.

Changes to the Parent-Child Exclusion

Prop 19 limits the availability of the parent-child exclusion for purposes of real estate tax assessments. This aspect of Prop 19 took effect on February 16, 2021.

Under prior law, when a parent (or grandparent) transfers ownership of his or her principal residence to a child, the property's value for tax assessment purposes is not reassessed, regardless of how the child uses the residence. In California, transferring a parent's home to one or more children is permissible under current law without triggering reassessment, and the child or children could use it as a vacation home or a rental property.

Prop 19 changed this by requiring that the child or children use the residence as their own principal residence, or it will be reassessed. Furthermore, even if the child uses the residence as his or her own, there is a cap of $1,000,000 on the exclusion, as explained below. Technically, the new and old rules apply where a child transfers the residence to a parent, but this is much less common.

If your home has increased in value significantly from its taxable value, Prop 19 adds certain limitations that could result in an increased assessment. This new rule will apply to outright transfers and to transfers in trusts, such as the QPRT transfer illustrated below. If the increase in value is less than or equal to $1,000,000, no adjustment is made. If the increase in value is more than $1,000,000, the increase in value after the first $1,000,000 is added to the tax assessed value. For example, assume a parent's home has a taxable value of $500,000. Because the parent purchased the home many years ago, its value is now $5,000,000. In other words, it has increased by $4,500,000. The new reassessed value if the parent gifts the home to her child will be $3,500,000. There are inflation adjustments that apply to the $1,000,000 increase limitation for subsequent years.

This change to the parent-child exclusion may also affect many common estate planning trusts that were established several years (or even decades) ago. For example, a qualified personal residence trust (QPRT) allows the transfer of a residence to a trust while that residence can still be occupied for a fixed number of years. The parent(s) continue to live in the residence as their primary residence, and at the end of the fixed number of years, the residence transfers to someone else (typically their children or a trust for their benefit). Most parents who establish QPRTs want to continue living in the house after the fixed term ends. They may do so, but they need to pay rent to the trust or to their children, depending on who owns the residence at the end of the fixed term.

Under prior law, when the children become the owners they would qualify for the parent-child exclusion. Now, however, the children need to use the residence as their primary residence or trigger reassessment. They could not rent it back to the parent, and if siblings are entitled to the residence at the end of the fixed term, they would need to move in together and share a household to qualify for the exemption – which perhaps is not ideal for most adult children. If parents have QPRTs whose fixed term ends on or after February 16, 2021, the value of their home may be reassessed to its current value. This could lead to a massive property tax increase, though it may be possible to mitigate this. A review of your estate planning documents is recommended.

Full text of Proposition is available at https://vig.cdn.sos.ca.gov/2020/general/pdf/topl-prop19.pdf

Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.

Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.

Pursuant to the rules of Code Sec. 530A, distributions from Trump accounts are limited during the growth period, which is the period ending on January 1 of the year in which the account beneficiary attains age 18. During the growth period, annual contributions are limited to $5,000 per year, as adjusted for inflation after 2027. Gifts of future interests in property are not eligible for the annual gift tax exclusion and must be reported on a federal gift tax return.

The safe harbor applies for a particular year if the following requirements of section 4.02 are met:

• The taxpayer is an individual;
• The only taxable gifts made by the taxpayer during the calendar year are cash contributions to one or more Trump accounts, each made before the calendar year in which the account beneficiary attains age 18;
• The taxpayer's total gifts during the calendar year to each individual who is an account beneficiary, including contributions to that individual beneficiary's Trump account, do not exceed the Code Sec. 2503(b) annual exclusion;
• Such contributions to Trump accounts during the calendar year do not generate for that year either a gift or generation-skipping transfer (GST) tax liability after application of the taxpayer's remaining applicable credit amount against the gift tax or remaining GST exemption; and
• Disregarding the Trump account contributions described in section 4.02(2) of the revenue procedure, a gift tax return is not required to be filed, and no gift tax return is otherwise filed for that calendar year by or on behalf of the taxpayer for any other purposes.

If these requirements are satisfied, each Trump account contribution made by the taxpayer during the calendar year will be treated as a completed gift to the account beneficiary that is not a future interest in property and to which the annual exclusion applies for purposes of gift and GST tax reporting. As a result, taxpayers within the scope of the safe harbor will not be required to file a gift tax return reporting the such contributions.

Rev. Proc. 2026-25

IR 2026-80

The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.

The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.

Under Code Secs. 6011 and 6707A, the IRS may identify transactions with tax avoidance potential as listed transactions. The final regulations add Reg. §1.6011-15, identifying transactions in which appreciated property is contributed to a purported CRAT, sold by the trust, and the sale proceeds are used to purchase an annuity, with the beneficiary improperly treating the annuity payments under Code Sec. 72 instead of applying the distribution ordering rules of Code Sec. 664(b).

Although participants and material advisors remain subject to the applicable disclosure requirements, organizations described in Code Sec. 170(c) that merely receive the charitable remainder interest are excluded from participant status and are not treated as parties to prohibited tax shelter transactions under Code Sec. 4965 solely because of that interest. The IRS finalized the regulations without substantive changes from the proposed regulations issued in 2024.

T.D. 10051

IR 2026-82

A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.

A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.

Background

The taxpayers sued multiple credit reporting agencies under FCRA provisions. They eventually settled with each agency. In all relevant Forms 1099–MISC the settlement amounts were reflected without the attorney’s fees and costs.

Civil Rights Interpretation for FCRA Claims Denied

The taxpayers’ FCRA claims of unlawful discrimination did not fall under Code Sec. 62(e)(18)(i). Said claims were based on fair and accurate credit reporting and not consumer privacy. Particularly, the taxpayers’ concerns did not fall under “highly sensitive” and “intimate personal information” categories.

J.W. Eiler, 167 T.C. No. 3, Dec. 62,865

The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status.

The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status. A name change following marriage should be reported to the Social Security Administration so the updated name matches Social Security records. An address change should be reported to the IRS by filing Form 8822, Change of Address, and employers, financial institutions and the U.S. Postal Service should also be notified. Marriage may also require submission of a new Form W-4, Employee's Withholding Certificate, to ensure the correct amount of tax is withheld.

Additionally, the IRS noted that the birth or adoption of a child may make a taxpayer eligible for valuable tax benefits, including the Child Tax Credit, Adoption Credit and Child and Dependent Care Credit, if applicable requirements are satisfied. Divorce or the death of a spouse may also affect filing status, tax withholding and eligibility for certain tax benefits. The IRS encouraged prompt updates to tax records, careful evaluation of changes affecting tax obligations and use of available IRS resources to better understand the tax consequences of major life events. Early action can help avoid filing issues, support accurate tax reporting, maximize available tax benefits and improve preparation for the next tax filing season.

IRS Tax Tip 2026-55

The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.

The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.

In a recently released report, TIGTA stated that from March 1, 2025, through February 28, 2026, the IRS received 51.5 million tax returns, down from 52. 4 million in the previous year, though it did see a significant drop in paper returns received from 1.2 million in 2025 to 618,000 in 2026. Of the returns received in 2026, the agency processed 50.9 million returns, down from 51.8 million.

From the beginning of the 2026 tax filing season to the end of February 2026, TIGTA reported that the inventory backlog in key tax return processing programs increased from 1.9 million to 2.4 million. Additionally, nearly 75 percent of the amended return inventory is over-aged during the 2026 tax filing season.

“Generally, inventories increase during the filing season as the IRS balances efforts to answer phone calls and reduce inventories,” TIGTA stated in the report. “However, with the reduction in staff, increases in key inventories could become a concern.”

The number of refunds dipped to 36.5 million from 36.9 million, although there was a $360 increase in the average refund from $3,382 in 2025 to $3,742.

TIGTA also reported that the IRS did not meet its hiring goals for the 2026 tax filing season. The agency had been approved to hire 1,900 employees for submission processing (these workers process original and amended returns and resolve tax return errors) but only onboarded 800 individuals. Likewise, it was approved to hire 3,500 account management employees (handlers of taxpayer contacts through telephone and mail and process adjustments) but brought 2,300 on board.

Submission processing management said it would be onboarding new hires throughout the tax season, while account management leadership had no plans to hire new employees and would only be onboarding those who previously received offers but had delays in the hiring process.

In a positive from the 2026 season, TIGTA reported that the new and modified “e-file business rules associated with the child tax Credit, state and local tax deduction, and adoption credit are working as intended.”

Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.

Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.

According to a recent TIGTA report, during the 2025 tax filing season, the Treasury watchdog made 91 unannounced visits to TACs nationwide at various time (regular and extended hours), at the 61 visits where TIGTA staff did receive assistance, “TAC employees did not provide the correct tax law guidance during 28 of those visits (46 percent).”

TAC employees were presented with questions across one of the three areas – injured spouse, selling your main home, and American Opportunity Tax Credit. The report notes that for questions related to tax law topics, “TAC employees must use the Interactive Tax Law Assistant ITLA) tool to respond to taxpayers. The ITLA tool asks a series of questions, then generates accurate and complete responses based on the taxpayer’s situation. The tool is designed for TAC employees and is intended to improve operational performance in the areas of quality, efficiency, customers satisfaction, and employee satisfaction.”

TIGTA noted that during the 2025 filing season, “managers counseled several TAC employees for not using the ITLA tool during taxpayer interactions. During our site visits, we also observed that TAC employees did not always the ITLA tool to answer our tax law questions.”

Additionally, of those 91 visits, TIGTA “did not receive full assistance during 30 of our 91 visits due to incomplete or inaccurate responses to tax law questions, denial of entry by security or unexpected TAC closures.”