Passed in the election of November 2020, Proposition 19 was a proposed constitutional amendment that made some significant changes to how property taxes are assessed in certain instances. Essentially it allowed for existing property tax assessments to be transferred to a new property without a reassessment. Before going into detail about the new rules, it’s necessary to look at the rules that were in place, and what those limitations were.
The Past Rules and Legislation: The relevant existing rules were laid out in Propositions 60 and 90. These propositions allowed for sellers age 55 + to sell their primary residence and transfer their existing property tax rate to their next purchase as long as the purchase price was the same as or less than the property they sold. Prop 60 was for Intra-County purchases while Prop 90 was for Inter-County purchases. At the time of the 2020 election, not all counties in California allowed for this transfer of tax rate. Prop 19 was initiated to address this and other issues with the current rules.
The New Solution: Effective April 1, 2021, Proposition 19 allows for homeowners who are 55 years of age or older, severely disabled or whose home has been substantially damaged by wildfire or natural disaster to transfer the taxable value of their primary residence to:
1) a replacement primary residence anywhere in the state,
2) regardless of the value of the replacement primary residence (but with adjustments if the replacement has a greater value),
3) within two years of the sale,
4) up to three times (or as often as needed for those whose houses were destroyed by fire).
New Restrictions: One of the other changes is that the transfer of tax basis on intergenerational transfers to children and grandchildren has now been limited to only those transfers where the primary residence continues to be used as a family home by the child or grandchild transferee. This prevents the transfer of tax basis for 2nd homes or vacation homes.
These changes brought by the passage of Prop 19 will:
· allow for more free movement for those who qualify under the revised rules
· increase the inventory of homes for sale
· create opportunities for buyers and sellers to change their living situation without severe tax consequences
Examples: See below for examples of purchasing a property of equal or lesser value and a property of greater value.
(1) Equal or Lesser Value: The replacement primary residence is of equal or lesser value, subject to an inflation index of 105% if purchased within one year of sale, and 110% if purchased within the second year of sale of the original property. The tax basis of the original principal residence may transfer to the replacement principal residence.
(2) Greater Value: The replacement residence is of greater value. The taxable value of the replacement primary residence is calculated by adding the difference between the full cash value of the original primary residence and the full cash value of the replacement primary residence to the taxable value of the original primary residence.
Original Primary Residence (OPR) taxable value $400,000
OPR sold for $900,000
Replacement Primary Residence (RPP) purchase $1,000,000
Difference between sale price of OPR
and purchase price of RPP is $100,000
Taxable Value of RPP is $400,000 + $100,000 $500,000
More Freedom: What this means on a more personal level is that if, for example, your parents are getting along in years and are still living in their 2-story, 4-bedroom house but don’t want to move because they have such a low tax base they have options. They now have the freedom to sell their house, buy a replacement property anywhere in California, and transfer their tax base to the new property!
The above is intended as general information only, and is intended to provide general and summary information about Proposition 19. It is not intended to be a legal interpretation, official guidance or relied upon for any reason but instead be a presentation of summary information. If there is a conflict between the information above and the text of the proposition or its implementation, the text of the proposition or legal interpretation will prevail. For more info, please click here https://www.boe.ca.gov/prop19/