Everything You Need To Know About Prop 19 in California

Everything You Need To Know About Prop 19 in California

  • Tiffany Torgan
  • 07/24/23

In November 2020, Proposition 19 passed in California and went into effect on April 1, 2021. To understand the significance of Proposition 19, we need to go back to Proposition 13 of 1978. This amendment stated that the annual property tax could not increase more than two percent or could not be higher than the inflation rate, whichever was less. This prevented properties from being reassessed when there was a new base value unless there was a change in ownership or a new property was finishing construction.

In 1986, an exclusion was added to Proposition 13, which excluded the re-examination of a property transfer of a primary residence of any value, and allowed the transfer of other properties with an assessed value of one million dollars. This allowed parents or guardians to transfer real estate to their child without reassessing the home. The new proposition replaced Propositions 60 and 90.

What does Prop 19 change?

Now that Proposition 19 has been passed, it means that children who inherit a home will not qualify for a tax break if they decide to use it as a second home or rent out the property. On February 16, 2021, the option to transfer up to one million of assessed property outside of the primary residence was eliminated. Now, if the primary residence is transferred to a child or grandchild that will use it as their primary residence or the fair market value at the time of the transfer is not larger than the assessed value by more than one million dollars. This law does not apply to LLCs or other legal establishments.

How it affects property transfer for those over 55

Before Proposition 19 was passed, homeowners over the age of 55 or disabled people could use their tax assessments to buy a home of equal or lesser market value in their current county. This has changed with the passage of Proposition 19.

Beginning in April 2021, they will be able to transfer their property value to homes in a different county with higher market value. This also applies to victims of natural disasters, such as wildfires or earthquakes. The increase in value needs to be added to the transferable tax value of the previous home.

For example, if someone sells their home for $30,000,000 and the taxable value is $20,000,000, they can transfer the taxable value of the old house to the new home if the house is less than $30,000,000. If the new home is $40,000,000, the new taxable value will be $20,000,000 plus the difference between the new value and the value the previous home sold for. Homeowners eligible for this property transfer can transfer properties three times in their lifetime. Before, they only had one opportunity to transfer the assessed value once.

This limits property tax increases on primary residences by removing arbitrary location restrictions on homeowners who are extremely disabled, victims of natural disasters, or seniors 55 years old or over that need to move to be closer to medical care or family or if they need to downsize. Proposition 19 gives homeowners more opportunities to find a home that fits their new lifestyle or replace a destroyed home and have legal housing coverage for houses damaged from wildfires or other natural disasters.

What this means

Proposition 19 significantly changed Proposition 13, which limited property taxes. Now, people can move to other counties in the state that fit their needs, whether to be closer to loved ones and medical care or are looking to downsize. Now, inherited properties that are not used as primary residences require market-value reassessments. The taxable home value of the old home is blended with the taxable value of a new home. Additionally, when a property is inherited and used as a primary residence, up to one million dollars of the re-examined value will be excluded from the new property tax basis. If the inherited property is used as a second home or rental property, the property will be subject to the area’s property taxes.

This new proposition limits property tax increases on family homes used as primary residences by defending the right of family members to leave their home to their children and grandchildren for continued use as a primary residence. In contrast, inherited properties that will be used as second homes or rental properties are not eligible for the exclusion and can face a significant increase in property taxes. This eliminates inequitable tax loopholes used by investors, celebrities, non-California residents, and heirs to avoid paying lower property taxes on second homes, rental properties, and waterfront rentals they own in California. The new proposition allows homeowners over the age of 55 to keep a better tax rate if they sell their current property and buy a new one.

Homes destroyed by wildfires and other natural disasters allow homeowners to purchase a more valuable home and transfer their tax base with an adjustment to account for the difference in value. This also extends to disabled persons and has some required paperwork that needs to be filled out to qualify.

Proposition 19 allows homeowners more options to move and meet their needs if they meet the qualifications. Experts can provide more information about the conditions and eligibility if you have additional questions about the law and its requirements, which include age and transferring the value within two years of the sale of the primary residence.

If your current home no longer meets your needs, Proposition 19 can be a good way to move to a new county, find a home that meets your needs, and explore homes for sale in La Jolla. Working with an experienced realtor knowledgeable about Proposition 19 and the La Jolla neighborhood will make house hunting much smoother, as they will also be able to walk you through the process. Contact Tiffany Torgan today with any questions!

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