Proposition 19, which passed in the November election by a slim majority in California, will implement a number of key changes to how you can — or can’t — retain your property tax benefits after selling or transferring your home.
Major provisions in the legislation begin going into effect February 2021, but Prop. 19 won’t impact everyone buying a new home.
Here’s what you need to know:
If you’re 55 and older, lost your home to a natural disaster, or have a severe disability
Moving just got a little bit easier for you.
Beginning on April 1, 2021, Prop. 19 will allow homeowners aged 55 and older, those who lost their homes to a wildfire or natural disaster, or those who have a severe disability to move anywhere in California and retain their existing property tax benefits up to three times, so long as that property is “purchased or newly constructed as that person’s principal residence within 2 years of the sale of the original primary residence,” according to the legislation.
For example, if you originally purchased your home for $400,000 and it is now worth $1.3 million, you may now retain your $400,000 tax base if you purchase or newly construct a home that is worth $1.3 million or under anywhere in the state of California.
If you fall under this category and your new home purchase is more expensive, Prop. 19 will also give you some leeway in tax savings by allowing you to blend the taxable value of your old home with the sale price of the new home. To calculate this new value, take the difference between the sale price of your original primary residence and the purchase price of the new home, and add it to the tax basis of the original primary residence.
To use the example from earlier: If your original primary residence was first purchased for $400,000 and is now worth $1.3 million, but you want to move to a home that is worth $1.5 million, you will retain your $400,000 tax base for the first $1.3 million of the value, while the remaining $200,000 will be added to the original $400,000 resulting in a $600,000 property tax base.
Prior to the passage of Prop. 19, homeowners had one opportunity to retain their existing tax benefits if they moved to a home in the same county, or a specific list of 10 counties, that was equal or lesser in value than the home they just sold. If they moved to a different county, one outside the list of 10, or to a more expensive home, they would lose their existing tax base and end up paying more in property taxes.
If you’re a parent passing down your home to your children, or you’re a grandparent passing down to grandchildren whose parents have died
The level of concern you should have for Prop. 19 boils down to what your child decides to do with the home you’ve passed on to them.
If your child will be living in that home as their primary residence within one year of the transfer, then you don’t have to worry about too much. The transfer will not trigger a reassessment, so long as the difference between the assessed value and the current market value is not greater than $1 million. If the difference is greater than $1 million, the home will be partially reassessed — but not at market value.
If, however, your child does not plan on living in that home full-time as their primary residence (e.g., they want to keep it as a second home or rent it out), your child will not be able to retain your existing tax benefits. For all transfers taking place beginning February 16, 2021, the home will be reassessed at its market value and the property taxes will likely increase as a result.
This may come as a disappointment to children inheriting property, as previous legislation prior to the passage of Prop. 19 allowed children to maintain the tax base value for inherited property, regardless of how they used the property. But Prop. 19 will not be retroactive, so it will only apply to transfers taking place beginning February 16, 2021.
These same rules apply to grandparents who are passing down family homes to grandchildren if their parents have died.
No worries — you’re likely not the only one! Feel free to reach out to us to chat more about your specific needs and questions in the contact form below.
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