California Proposition 19: How it Impacts Property Tax Transfers and Exemptions

Proposition 19 is the Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment and in November of 2020 it was approved by California voters, adding new laws surrounding real estate sales and property taxes throughout the state. Prop. 19 aimed mostly to benefit older California residents that wish to sell their existing home, and has provided expansive guidelines for children inheriting their parent’s property as well.

What are the impacts of Prop. 19 and who is eligible?

Prop. 19 was enacted to benefit those people over the age of 55 or living with severe disabilities, and those that lost a home to a natural disaster.

Under Prop. 19, eligible homeowners are now able to transfer their current tax basis anywhere within the State and to a more expensive home, whereas previously homeowners were limited to transfers within certain counties and to homes of equal or lesser value. This ultimately provides more flexibility for retirees to move freely throughout the entire state multiple times and allows them to carryover their existing property tax basis.

Homeowners will also be able to move up to three times and carry their property tax basis (subject to certain restrictions), not just once. This law however, still requires market-value reassessments for properties that are not used as a primary residence.

Finally, if a property owner purchases a more expensive home, they are also now able to blend the taxable value of their old home with the value of a new, resulting in positive property tax savings. For example, if an eligible homeowner sold their home with an assessed value of $250,000 for $2 million and bought a new home for $3 million, the new home’s assessed value would be $1.25 million, which is the $250,000 assessed value, plus the $1 million increase in home value.

On the downside, Prop 19 has now placed stricter limits on how one can inherit property in California. If you plan to leave real estate to your children, passing the property tax basis to them and avoiding a reassessment is now much more limited. Under the new law, the availability of an exclusion from real estate tax assessments and the resulting property-tax consequences which was previously openly available to parent-child property transfers is now under strict scrutiny.

Prior to Prop. 19’s passage, parents could transfer a primary residence to children without a new tax reassessment, regardless of how the children chose to use the real property. Effectively, this allowed children to inherit the same property tax basis that their parents enjoyed. Additionally, any secondary property, such as a vacation home, rental property or commercial property, could be transferred with up to $1 million of the assessed value being exempt from the increase in property taxes.

Today, children who inherit a home from their parents will have to factor in increased property taxes in the decision to keep or sell the property. If a child chooses to keep the inherited property and use it as their primary residence, then up to $1 million of the reassessed value will be excluded from the new property-tax basis. (Previously, primary residences could be transferred without limit.) If the child chooses to keep the property as a second home, vacation home or rental property (anything other than as the child’s primary residence), there is no $1 million exclusion and the child will be forced to face a significant increase in property taxes.

Ultimately, Prop. 19 was designed to make it more affordable for retirees or older homeowners to sell their primary residence and move to another part of California. To apply for these benefits you’ll need to file a claim with the county assessor. In order to receive the base year tax value transfer, a claim form must be filed after both transactions have been completed and you are living in the replacement home. This is not done through escrow.

For more information please visit The California State Board of Equalization

Disclaimer: Any information provided is not intended as legal advice. Because of the generality of this provided information, it may not be applicable in all situations and should not be acted upon without specific legal advice based on your particular situations.