What is Prop 19, how can it affect me and my family?
Prop 19 allows homeowners over the age of 55 to transfer their low property taxes to new homes up to three times. In the past, seniors were allowed to do this with Prop 60/90, but it only lets you do this one time, and only with participating counties.
Now you can do it multiple times to anywhere in the state, and you’re not limited to only buying something at the same price or cheaper than your current property.
The essence of the proposition is to help empty nesters who wanted to move out of their big homes into something more suitable for their current needs. Instead of staying in a large 2 story home, in a good school district, they can buy an updated condo in a 55+ community while still keeping their low property taxes with them.
This lets a new family buy their home to enroll their kids in a great school, while also increasing the funds that the school will get via the increased property taxes from the new homeowners.
And as a bonus, the surpluses that are gained from the new proposition will go towards the new California Fire Response fund which would help fund fire suppression staffing and full-time station based personnel.
Inheritances are now taxed unless the heir moves into the home. It prevents property taxes for investment properties from being frozen in time across generations. It’s not fighting prop 13, it’s fighting prop 58 and 193.
If the replacement primary residence is of equal or lesser value than the original primary residence, then the taxable value of the replacement primary residence shall be the taxable value of the original primary residence.
How does it work?
For example. If you bought your house a long time ago and your current taxable value for your home is $400,000 and you sold it for $1,000,000. Then if your replacement property is bought for $1,000,000 or lower, the taxable value of the replacement property will stay the same at $400,000.
But if the replacement primary residence has a greater value than the original primary residence, you’ll have to pay the difference. So in our previous example, where the original primary residence’s taxable value was 400K and was sold for $1,000,000 and the replacement property was purchased for $1.1 Million, the new taxable value will be $400K + the $100K difference in property values. So you’ll be paying taxes on a $500K total taxable value.
Anyone who wants to transfer the taxable value of their primary residence needs to file an application with the assessor of the county in which the replacement primary residence is located. Your real estate agent should be able to help you with this form.
Inheriting Property
Prop 19 also changes the way inherited properties keep their taxable values. In the past, heirs could keep the taxable value of the properties they inherit. So if the property was worth $1 million and the taxable value was $400K, they could continue to pay taxes on a $400K value. Now, the properties get reassessed unless the heir moves into the home as their primary residence. The taxable value will also increase if the property value has increased by over $1 million over the taxable value. This $1 million buffer will increase every year starting Feb 16 2023 based on the house price index for California. Parents are allowed to sell their homes to their children to pass on this benefit, but grandparents need to have passed away to transfer their property taxes to their grandchildren. The heir or transferee needs to make the home their primary residence within one year to take advantage of this benefit. It’s extremely important to pay attention to the dates since if you mess up, there’s no going back, and your property taxes will be increased forever! The change for seniors transferring their property taxes is effective April 1, 2021. Before that date, it’s safe to assume that you’ll be working with the older Prop 60/90 regulations. The change to inherited property is effective starting Feb 16, 2021.
And before you go off and try to use your new Prop 19 benefits, be sure to talk to an attorney to make sure your plan will work as you expect it to!