Prop. 19 narrowly passedat the ballot box in November 2020 andtook effect in April 2021. That means Californiaproperty owners have had time to take itfor a spin.In that time, the legislation has earned fans who are saving thousands on property taxes and haters who are payingthousands more and pushing for a repeal.
But, mostly, the law still lives in obscurity.
AsAbio Properties co-founder and broker Cameron Platttold the San Francisco Chronicle, many homeowners arejust learning about Prop.19’spotential effect on theirhome sales and property transfers.
If you fall into the “Prop. 19, what’sthat?” camp, you’re in the right place. Let’s get you caught up.
What is Prop. 19?
Prop. 19 is a constitutionalamendment to California’s controversial Prop. 13 and was backed by theCalifornia Association of Realtors. The legislation does two things:
- Prop.19 allows home sellers who are aged 55 and older or severely disabled or losttheir home in a natural disaster toselltheir residence and buy a new oneanywhere in California without, in manycases, experiencing increased property taxes. This is called a "tax basis transfer." The law was partly designed to nudge empty-nestersout of the longtime familyhomes they’ve been reluctant to sell because they fearedhaving to pay higher property taxes on their next residence (thanks, skyrocketing real estate values). Prop.19’s backers predict the measure now will incentivizemore seniors to sell and downsize, thus increasing California’s scant family homeinventory and helping address thestate’s housing shortage.
- Prop.19 alsoraisestaxes on certain inherited and gifted family properties by closing a Prop. 13.That loophole allowed children and grandchildren who inheritedproperty to alsoinherit the old property tax base, even if the current market value hadincreased significantly. Prop. 19 now only allow heirs to keep the family’soldproperty tax basis if they reside in the home (don’t rent it out) and if the propertyhas gained less than $1 million in assessed value.
“The philosophy (behindProp. 19) was to help spur home sales,” Cameron told Chronicle writer KathleenPender. While Cameron can’t personally say whether the lawhas increased sales yet,“it has made it easier to talk to our clients who are eligible, calming some oftheir fears about how much more expensive” moving could be.
Prop.19 in practice the Bay Area
Sincethe legislation took effect, all nine Bay Area counties reportedly have seen ajump in the number of older and disabled home buyers taking advantage of the taxbasis transfer.
Amongthem, Contra Costa County received the most tax basis transfers applications – a whopping 833 in the first 12 months, according to theSF Chronicle.
Topreason given for a transfer? Following adult children and grandchildren who moved to the East Bay because they got priced out of SanFrancisco, San Mateo, and Santa Clara counties.
Cameron’sclients Linda and Ed Tywoniak, also interviewed by the Chronicle, said they weren’t aware of Prop. 19when they first considered selling their Oakland home of 38 years andpurchasing a placein Pleasant Hill near their kids and grandkids. But now that they know about it(Cameron informed them), they plan to apply for a Prop. 19 transferonce they buy.
Initially, “most of my questions were aboutcapital gains, to tell you the truth,” Linda told the publication. Prop. 19“was an addedincentive. Maybe it put me over the edge” in the decision tosell.
Whilethe Tywoniaks don’t yet know how much they might save on property taxes whenthey buy their next home, the Chronicle spoke to another older East Bay couple that saved more than $5,000 a year when they sold their Alameda home and transferred their property taxbasis to a home they purchased in Tiberon (Marin County).
Prop.19: The nitty gritty explained
BecauseProp. 19 is complex legislation, you may still have a lot of questions abouthow it could affect you. We hope you find your answers in our Prop. 19 FAQsection below. In addition, wealwaysrecommend you consult with aqualified CPA, real estate attorney, tax advisor, or estate planner beforemaking propertydecisions potentially affected by legislation.
Prop. 19 FAQS: Base Year Value Transfer
DoI have to buy a new home immediately after selling my original residence?
If you are at least age 55or severely disabled or a victim of a natural disaster, you have two years fromthe sale date to purchase or construct your next residence. Source
Doesmy new residence have to be in the same county?
No.You can transfer your original tax basis to anywhere in California. Source
Howmany times can I move and take my property tax basis with me?
Asan older adult or person with disabilities, you can do this three timesindividually. That means a husband and wife can do it a total of six times.There doesn'tappear to be asimilar limit for natural disaster victims (of course, we'd hope no one goesthrough such tragedy more than once!)The replacement home(s) still has tobe purchased within two yearsof the original property’s sale. Source
CanI transfer my base yearvalue to a home of any value?
Yes,but… (See next question and answer.)
Whatif my new home is worth more than my original home? Do I still get to keep theoriginal tax basis?
Notexactly. TheCalifornia State Board ofEqualizationsays, “If the full cash value of the replacement home is greater than thefull cash value of the original home,the difference in full cash values willbe added to the transferred factored base year value.”
Howmuch more will I pay?
If the new home costs more than the home you sell, thedifference in value is added to your old tax base to arrive at the new tax base.Sean Bellach,C.A.R.’sgovernment affairs representative, walked us through the math:
Let’ssay you sell your longtime family home, which had a taxable value of $250,000,for $800,000. And then you buy a new home assessed at $850,000.
- First, find the difference between the originalhome's sale price and the replacement home's purchase price. In this scenario, thedifference is $50,000 ($850,000-$800,000).
- Add the difference to the original home’s taxbasis. In this case, the sum is $300,000 ($50,000 + $250,000).
- Therefore, $300,000 is your new home’s baseyear value.
Howdo I apply for a Prop. 19 base year value transfer?
File a claim with thecounty assessor where the replacement property is located. Source
Prop 19 FAQs: Intergenerational Transfers
Howw does Prop. 19 impact children and grandchildren inheriting a primary familyproperty?
California'sProp. 19 closes the so-called Lloyd Bridges loophole in Prop. 13, a referenceto the property tax advantage the actor’s children benefited from afterinheriting their dad’s Malibu home in 2009. In that case, the heirs’ tax billwas based on a 1975 assessment, even though the ocean-front property’s valuehadsignificantly increased by the time the kids took it over. Between2009-2017, the heirs owed just $48,000 in property tax, compared to the $300,000more they wouldhave owed had the house been reassessed, according to anL.A. Times analysis.
Nowunder Prop. 19, heirs can enjoy the old property tax basis only if the taxableproperty value at the time of transfer isnot more than $1 million over thatoriginal taxbasis.If the taxable property value is more than $1 millionover the original tax basis, you'll be assigned a somewhat higher property taxbasis. Source
Ifthe inherited property's market value has grown by more than $1 million sincethe home was last assessed, how much more will the heirs have to pay inproperty taxes?
Thenew taxable basis will be the assessed value of the property at the time oftransfer minus $1 million. Source
Doheirs have to live in the inherited home, or can they rent it out?
Ahome gifted by parents or grandparents must be the heir’s primary residence. Ifyou rent it out, you lose the inherited tax basis. Source
Whatdoes Prop. 19 say about transferring other properties – non-primary residences –to family members?
Prop.19 eliminates a Prop. 13 provision that allowed parents and grandparents totransfersecondary property(like avacation home or rental property) to heirs andexempt up to $1 million inassessed value. Source
Howdo I apply for a Prop. 19 intergenerational-transfer exclusion?
Submit a claim formto the county assessor where the property is located. (Forms BOE-19-G forgrandparent-to-grandchild transfers and BOE-19-P for parent-to-childtransfers) Source
I heard an effort was underway to repeal Prop.19. Is that true?
Yes,a partial repeal of Prop. 19 is being sought by the Howard Jarvis TaxpayersAssociation, which wants to overturn the inheritance provisions. However, thegrouprecently tried and failed to collect enough signatures to qualify a repeal measure for the November2022 ballot.
If I still have questions about Prop. 19, who do I contact?
Contact your local county assessor’s office orthe Department of Equalization’s Property Tax Department by phone at1-916-274-3350 or by e-mail.
This article is intended to provide general informationabout Prop.19and is not intended as a substitute for individual legal advice.We urge property owners to seek counsel from a licensed real estate attorney,tax advisor,or estate planner. Abio Properties has not and will notverify or investigate information provided by third parties.
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AbioProperties is a boutique real estate agency with offices in Oakland,Lafayette, and Walnut Creek. To learn more, contact us at 888-400-ABIO (2246) or [emailprotected]
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