California’s ballot last November had several real estate related propositions. Proposition 19 was the only one that passed. It contains a tax break that might benefit you, but it also changes another one that may cost you.
Proposition 19 Winners
In 1978, Californians passed Proposition 13. Prop 13 limits property taxes, in most situations, to 1% of the purchase price of the home at the time you buy it. It also caps how much the taxes can increase to usually no more than of 2% per year. But homes in California tend to appreciate more than 2% per year. This means that if you’ve owned your home for a long time, it’s probably worth more than its assessed value.
Many homeowners have avoided moving partially to avoid a big jump in property taxes. Propositions 60 and 90 did help certain homeowners transfer their property taxes from the homes they sold to the ones they bought. But Prop 19 allows more people to make this transfer.
With Proposition 19, a homeowner who is 55 years of age or older, severely disabled or whose home has been substantially damaged by wildfire or natural disaster can transfer the taxable value of their primary residence to another home. The new home needs to be another primary residence and can be located anywhere in the state of California. They can make this transfer up to three times (or more if their home was destroyed by fire).
Those older propositions required your replacement home be of equal or lesser value than your original home. With Prop 19, you can buy a replacement home of greater value. If the replacement home is of equal or lesser value, you can transfer the tax basis of the original home to the replacement home. If the replacement home is of greater value, the difference between the cash value of the original home and the replacement home will be added to the taxable value of the original home. See an example of how this works on the California Board of Equalization’s website. You’ll also find more details on how and when you can qualify under Proposition 19.
Hope for Homebuyers
Supporters of Proposition 19 argued that more people would choose to move if they could hold on to their lower property taxes. The real estate market has been very short on inventory for home buyers for quite some time. If they’re right, this will help open up new choices for homebuyers who have been struggling to purchase a home in California.
Proposition 19 Losers
Prop 19 replaces Proposition 58 and limits its parent-child reappraisal exclusions. Starting on February 16, 2021, Proposition 19 will eliminate the parent-child exclusion if they transfer property that is not their principal residence.
It also changes the rules for the transfer of a principal residence to a child or grandchild. The home now must become the recipient’s primary residence. Prop 19 also puts limits on the value of the property. The California Board of Equalization has a chart showing these and other changes.
This may also help home buyers by adding more homes to the market, but it could remove some rental properties.
Get Professional Advice
I’m always here to answer any real estate questions you have. But if you have any questions about Proposition 19 and how it might affect you, please speak with a real estate attorney or qualified estate planner.