Prop 19, gives new property tax breaks to certain homeowners (55 years and up or the severely disabled), increases property taxes for those inheriting properties and even tacks on some extra tax relief for Californians affected by wildfires.
Let’s break down the pros and cons as well as some questions you may still be asking yourself.
The biggest winners under Prop 19 would be people 55 years and older, severely disabled homeowners and those with a home damaged by a wildfire or natural disaster. All three categories of homeowners would pay lower taxes when moving into a new primary residence, even if it’s more expensive. The rules would extend to every county in California, and homeowners could take advantage of the tax break as many as three times when they decide to move — or an unlimited number of times if they were affected by a natural disaster.
Those with the most at stake under Prop 19 would be kids who inherit their parents’ home and intend to keep it as a second home or rental property. Their property taxes will go up to market rate.
The Details
Beginning April 21st, 2021 there will be three major changes. First, Prop 19 allows the seller of a primary residence to transfer their property tax basis to their new home anywhere in California. Second, it allows the transfer of the tax basis to the new home regardless of value, with certain adjustments made if the new home is of greater value. Third, as explained above, Prop 19 permits tax basis transfers up to three times, but it’s unlimited for those whose homes are destroyed or severely damaged by a fire or other natural disaster.
The Rules
If the new home is of EQUAL OR LESSER VALUE, it will be subject to an inflation index of 105% if purchased within one year of sale, and 110% if purchased within the second year of sale of the original property.
If the new home is of GREATER VALUE, the taxable value of the new home will be calculated by adding the difference between the full cash value of the original home and the full cash value of the new home to the taxable value of the original home.
Q & A
What if I’m over 55 and want to sell my home now? Do I have to wait until April 1, 2021?
The current law says that the purchase of a new home must be made within two years of the sale of the original home. If you’ve already transferred your property tax base once, you won’t be able to do so again until April 1, 2021.
Can you purchase a new home before the original home is sold?
Yes! That’s how the current rule under Prop 60 operates, and Prop 19 uses nearly identical language.
If I pass my principal residence on to my children or grandchildren, will the property be reassessed?
If the home continues to be used as a primary residence, and the child/grandchild claims the homeowner exemption, then the property taxes will remain the same. But, it will be subject to some upward adjustments if the property value at the time of transfer is more than $1 million over the original tax basis. This rule takes effect on February 16, 2021.
h/t Tacos & Tequila
