Prop. 19 Passed!
Updated: Jan 25, 2021
Prop. 19 Passed – Here’s what you need to know.
California’s Proposition 19, ambiguously titled, “Changes Certain Property Tax Rules” was passed on November 3, 2020. This article covers the highlights of the proposition that may impact your family.
First for background, under Prop. 13, passed by voters in 1978, all real property in California is assessed at market value when it changes hands. In between sales or transfers, this assessed value can only go up by an inflation rate, capped at 2% a year, plus the value of any new construction or major improvements.
After Prop. 13 passed, voters approved five propositions that exempted some properties from reassessment when they change hands. On April 1, 2021, Prop. 19 replaces all of them.
Prop. 19 is certainly good news for homeowners over 55 years old, certain disabled people, and victims of wildfires. Often these groups were trapped in their current home because their property taxes would become unaffordable if they sold and moved to a new house.
Prop. 19 will allow these sellers to transfer their current tax basis anywhere in the state of California. The current law (Props 60 and 90) only allows transfers between 11 counties. In addition, they will be able to buy a property more expensive than the one they sell. This is a true game changer for sellers needing to move to a more expensive area to be closer to family.
The new property tax base in this case will be equal to the current tax base plus the difference in values of the two properties. Here’s an example:
Current Tax Base $ 250,000
Current Home Value $1,000,000
New Home Value $1,300,000
Difference in Values $ 300,000
$250,000 Current Tax Base + $300,000 Difference in Value = $550,000 New Tax Base
In addition, the proposition allows homeowners to use this benefit up to 3 times in their lifetime, whereas the current law only allows the transfer once.
To offset the lost revenue, the measure will also reassess property inherited from parents or grandparents. Under Proposition 19, a child will have to live in the inherited family home as their primary residence and the difference between the assessed value and market value cannot exceed $1 million to be exempted from this reassessment. Inherited investment property will now be reassessed. This change goes into effect February 16, 2021. As such, if you have a family home you wish to transfer to children or grandchildren without assessment, it’s imperative to act quickly. Call me at 714 276-7006 for referrals.
The net result of both parts of the measure will increase property sales and is supported by the California Association of Realtors. Supporters of the measure, including myself, believe the measure will produce a net gain in revenue, with the money earmarked toward California’s wildfire initiatives.