How does Prop 19 impact YOU?

Proposition 19 was a measure passed by California voters that goes into effect beginning in February. In short, it allows homeowners to transfer their property tax assessment to a new California home and impacts taxes for inherited properties.

The new laws, which you can read here, can be confusing, so highlighted below are the key elements:

Transferring Property Base Year Value

• Homeowners 55+ can now move and transfer their current property tax assessment to a new primary home anywhere in California. This may be done up to three times, however, the replacement property must be purchased within two years of the sale of the original property. Previously homeowners could only transfer their tax base once in their lifetime and only within the same or a very limited number of counties within the state.

• Homeowners will no longer be limited to purchasing a new primary home that costs the same or less than the one they sell. The new property can cost up to $1M more than their existing home in order to claim the full benefit; after $1M the transferred tax basis will be prorated.** This law goes into effect on April 1, 2021.

  
  For example:
  1. Original property has a base year value of $500,000 and sells for $900,000
  2. Replacement dwelling is purchased for $1,200,000
  3. The replacement dwelling’s new base year value is $800,000
  - $1,200,000 - $900,000 = $300,000
  - Property’s “base year value” (from property tax bills) = $500,000
  - $300,000 + $500,000 = $800,000

Inherited Properties Have New Restrictions

• Beneficiaries could see a substantial increase in their property taxes for inherited property. Where previously there was no limit to exclusion, Prop 19’s exclusions apply only to the first $1M of value.
  For example, if the principal residence has a fair market value of $1,750,000 at the time of transfer to the beneficiary, the new assessed value = $750,000
  - $1,750,000 - $1,000,000 = $750,000

• Beneficiaries must also now live in an inherited property as their primary residence in order to get the tax break. They have one year to establish the property as their principal residence in order to avoid reassessment. (However, if the inherited property value is more than $1M over the original tax basis, a reassessment is still likely.) This law goes into effect on February 16, 2021.

This is not all of the details that pertain to Proposition 19, this provides an overview of how the new laws may impact homeowners and their decisions to either move or hand down their property.

If you have any specific questions regarding your scenario, I would like to recommend my most trusted real estate attorney, Deb Graceffa at Gargalicana/Graceffa, LLP - reach her via Deb@GGLLP.net.

* Consult with an attorney/accountant to confirm how the new laws apply to your circumstances. Prop 19 comes with limitations and these statements are intentionally broad.
** Also applies to victims of natural disasters/wildfires and the disabled.