How does Proposition 19 benefit California’s housing market, provide tax savings for homeowners and create new homeownership opportunities?
- Homeowners who are 55+ or severely disabled can transfer the property tax base of their existing home to another home anywhere in California, regardless of price, tobe closer to family or medical care, downsize, or move to a home that better meets their needs without a property tax increase (with an adjustment upward to their tax basis if the replacement property is of greater value).
- Allows wildfire victims to transfer the property tax base of their damaged home to a replacement home anywhere in California.
- Creates housing opportunities to build more senior housing and retirement communities.
- Opens up more housing inventory in neighborhoods throughout California, providing homeownership opportunities for renters, young families, and first-time homeowners.
What are the new rules for homeowners to transfer their low property tax base to another home under Prop 19?
- Older homeowners, those who are severely disabled, or victims of wildfires or natural disasters can move anywhere in the state without location restrictions.
- Qualified homeowners can transfer their existing property tax base to another property regardless of the cost of the replacement home (with an adjustment upward to their tax basis if the replacement property is of greater value).
- Homeowners can transfer the property tax base of their existing home to a replacement home up to three times.
- The original property and the replacement property must be the principal residence of the homeowner.
Who is eligible to access these new tax benefits?
- Homeowners who are 55 years or older
- Severely disabled
- Victims of California wildfires or natural disasters
How does Prop 19 work when purchasing a new home for the same price (or less) than the original home?
Transferring Tax Benefits to a New Home Across County Lines: If the purchase price of the replacement home is equal to (or less than) the sales price of the existing home, even if the replacement home is in another county, the tax base of the replacement home will remain the same as the original residence. (“Sales price” means full cash value.)
Example #1:
A senior couple on a fixed income lives in a home valued at $600,000. They pay $2,200 in property taxes (based on the $200,000 original purchase price). They find a $600,000 home to purchase near family in another county but can’t afford the new $6,600 annual property tax bill that comes with moving – it could cost $4,400 more in annual property taxes to move.
Under Proposition 19: The senior couple can purchase the $600,000 home in another county without a property tax increase. Prop 19 allows these homeowners to transfer the tax base of their original home to the replacement home, saving $4,400 in annual property taxes.
How does Prop 19 work when purchasing another home that costs more than the sales price of the original home?
If the sale price of the replacement home costs more than the price of the existing home, qualified homeowners can blend the tax base of their original home with the tax base of the new home. The new, adjusted property tax base of the replacement home takes the tax base of the original home and adds the difference between the sale price of the new home and the original home. (“Sales price” means full cash value.)
Example #2:
Another senior couple with a home valued at $600,000 (also paying $2,200 in property taxes) wants to downsize from the two-story home that is too big for their needs, is too expensive to maintain, and has stairs that are difficult for them to use. They want to downsize to a more manageable home in a newly built retirement community nearby for $700,000, but they can’t afford the $7,700 spike in property taxes that comes with moving.
Under Proposition 19: This couple will save $4,400 in annual property taxes. Prop 19 allows homeowners to keep their existing Prop 13 tax base and transfer it to a more expensive home. The property tax base of the new home is determined by adding the difference between the sales price of the replacement home ($700,000) and the original home ($600,000) to the tax base of the original home ($200,000). In this example, the couple would pay $3,300* in property taxes, instead of $7,700 in property taxes. (*The tax savings could be greater depending on the definition of “equal or lesser” value). Prop 19 Sample
What was the law before the enactment of Prop 19?
Under Prop 60 and Prop 90, seniors and disabled homeowners faced location and price limits, were restricted to transfers within the same county (with some exceptions), could only transfer if the price of the replacement home was less than or equal to the value of the original home, and were only allowed one transfer.
If an eligible homeowner used their one-time base year value transfer under Proposition 60/90, can they transfer that base year value three more times under Proposition 19?
Yes, according to the Board of Equalization,* three transfers under Proposition 19 will be allowed regardless of whether a property owner transferred a base year value in the past under Propositions 60/90 and Proposition 110.
Future legislation may impact the operation of Proposition 19 and any updates will be posted on the Board of Equalization’s website.*
The Board of Equalization has posted on its site the above FAQs addressing the purchase or sale of property prior to April 1, 2021. These questions are qualified with the following disclaimer:
Proposition 19’s provisions will become operative on February 16, 2021 (intergenerational transfer exclusion) and April 1, 2021 (base year value transfer).
Unfortunately, Proposition 19 did not have companion legislation that would have clarified a host of issues. Therefore, these frequently asked questions (FAQs) are intended to help property taxpayers navigate those new provisions in light of Proposition 19’s lack of clarity or silence.
It is anticipated that these FAQs will be updated periodically with additional questions, particularly if legislation is enacted or further guidance is issued by the Board.
Please check back often for updates. https://www.boe.ca.gov/prop19/#FAQs
The information contained herein is intended to provide general information and is not intended as a substitute for individual legal advice. Specific examples used are only general examples, and the actual amount of property taxes owed for any person will depend on the specific situation of the individual and a wide variety of other factors. Therefore, all persons are directed to seek the advice of an attorney regarding their specific tax and legal situation.
