ARE YOU 55 OR OLDER?
HAD YOUR HOME FOR YEARS AND RELISH YOUR LOW PROPERTY TAXES?
WOULD YOU LOVE TO MOVE ELSEWHERE IN CALIFORNIA, BUT WISH YOU COULD TAKE YOUR CURRENT LOW PROPERTY TAXES WITH YOU?
THANKS TO PROP 19, NOW YOU CAN!
What Are The New Rules?
Homeowners who are 55+ or severely disabled or victims of natural disasters can transfer the property tax base of their existing home to another home anywhere in California, regardless of price, to be 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). These homeowners may utilize this new law no more than three times in their life and the original property and the replacement property must be the principal residence of the homeowner.
How does Prop 19 work when purchasing a new home for the same price (or less) than the sale of the existing home?
If the purchase price of the replacement home is equal to (or less than) the sales price of the existing home, 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.
If the sale price of the replacement home costs more than the price of the existing home, qualified home- owners 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 Prop 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
NEGATIVE PROVISIONS OF PROP 19
Yes, the government giveth . . but it also taketh away. Prior to Prop 19’s operative date of February 16, 2021, one could inherit their parents’ principal residence and retain the lower assessed property taxes no matter if he/she intended to live in or rent the property. Prop 19 changed this by now mandating that a child live in the property as his /her principal residence as well to maintain the current low property taxes. If not, the property will be REASSESSED at CURRENT MARKET VALUE for property tax purposes.
Thus, if a child is not going to make their parents’ or grandparents’ inherited home their own, he / she will face the following decision:
- Sell the property and take the profits without any capital gains tax based on the parents’ / grandparents’ stepped-up tax basis and sail into the sunset.
- Hold the property and pay the increased property taxes every six months based on current market value as well as start incurring a capital gains tax basis from the date of parents’ / grandparents’ death.
Given these choices, many individuals and families choose the first option.
REMEMBER, unless a real estate agent is ALSO a California attorney, they CANNOT AS A MATTER OF LAW opine or give advice as to how the complexity of Prop 19 may affect your individual real estate situation as it is the unauthorized practice of law forbidden by the California Business and Professions Code. CHAD GORDON IS BOTH A LICENSED BROKER AND REAL ESTATE ATTORNEY WITH OVER TWO DECADES OF EXPERIENCE COUNSELING INDIVIDUALS AND FAMILIES WITH THEIR REAL ESTATE HOLDINGS.