California Proposition 19 (Prop 19): Does It Affect You?

Californians are no strangers to controversial housing legislation, with Proposition 19 being one of the latest. Passed during the November 2020 election, and effective April 1, 2021, Prop 19 has made some large changes to property taxes and property inheritance, some for the better and some for the worse. Let’s break down what Prop 19 is all about.

 

Prop 19 has two parts. First, it permits eligible homeowners – defined as those over 55 years of age, severely disabled, or whose homes were destroyed by wildfire or disaster – to transfer their primary residence’s property tax base value to a newly purchased or constructed replacement residence of any value, anywhere within the state of California. Previously, California residents were able to transfer their primary residence’s property tax base value one time, but could only do so if both the county they currently lived in AND the county they were moving to had opted-in to the state’s property tax transfer program. Prop 19 opens the ability to transfer between every county in the state and increases the allowance to up to three times (or once per disaster).

 

Second, it affects real property transfers between family members. Previously, any property passed down from parent or grandparent to child or grandchild was subject to an assessment exclusion, allowing the recipient to inherit the property’s assessed value and it’s base tax rate.

 

Under Proposition 19, a child or children may keep the lower property tax base of their parent(s) ONLY if the property is the principal residence of the parent(s) AND the child or children make it their principal residence within one year, AND the property’s fair market value is under the state’s value limit. The value limit is the sum of the factored base year value plus $1 million. If the market value exceeds the value limit, partial tax relief can be applied – anything exceeding the excluded amount is added to the factored base year value. For example, if a child inherits property from their parents with an assessed value of $500,000 and a fair market value of $2 million, the property would be reassessed at $1 million ($2 million fair market minus the $1 million exclusion). Any inherited second homes, vacation homes, or income properties are not covered under Prop 19 and, when inherited, their property’s tax rate will be reassessed to reflect the current market value of the property.

 

Prop 19 only applies to in-state moves. Property tax base value does not include special assessments applied by each city or county. Prop 19 allows entire households – rather than individuals – to transfer their assessed property tax value when they move. Let’s say a move is due to a divorce and two people who live in one property are each purchasing their own property separately; since Prop 19 can only be transferred from a single property to another single property, only one of the two original owners would be able to claim Prop 19 benefits and transfer the original home’s property tax base value.

 

What if the newly purchased property is more expensive than the sale price of the original? If a property is purchased with a market value above the market value of the original property, the assessed value would be the difference between the two home’s prices, plus the assessed value of the original property. For example, if Property A had an assessed value of $400,000 and was sold for $950,000 and then Property B was purchased for $1.5 million ($1.5 million minus $950,000 equals $550,000), the assessed value of Property B under Prop 19 would be $950,000 ($400,000 plus $550,000).

 

To qualify for the tax benefit under Prop 19, you must meet several criteria. First, you must have owned your home for more than five years prior to the date of the sale AND it must have been your primary residence for a minimum of two years. Secondly, transactions for both selling the existing property and purchasing the new property must be completed prior to filing a claim.

 

Next, you must file a claim with the assessor of the county in which the replacement property is located. The application process varies from county to county, but you can usually find the necessary forms online. You will need to provide the required proof that you are eligible for Prop 19 benefits. Make sure that all of your paperwork is complete and submit it to the county assessor’s office shown on the paperwork. Once approved, you will receive a letter from the county that your base year value transfer exclusion is granted.

 

With rising property prices, and with that rising property taxes, Prop 19 was designed to help protect certain groups of individuals from being unable to move due to the tax implications that often coincide with a higher-valued property.