Passed by 51.1 percent of California voters last November, Proposition 19 contains both positive and negative changes for those age 55 and older with regard to property taxes.
Beginning April 1, 2021, eligible senior homeowners who sell their homes can transfer their property tax base to any other property they buy in California for the same value or less.
- Before Proposition 19, assume you bought a home in 1980 for $200,000 and sell it for $900,000 now. If you purchased a smaller home worth $500,000 later, you would pay far more in property taxes than you used to, and you’d be taxed on the $500,000 tax base rather than the $200,000 base you used to have in the home you sold.
- After Proposition 19 passed, you can now buy a home worth $900,000 or less anywhere in California and still have the $200,000 tax base that you had in your previous home. You can take advantage of the transfer up to three times in your lifetime in the state.
- If you buy a more expensive home, you can also benefit. Your old tax base transfers but anything over the cost of your old home is taxed at the current rate. As an example, had you bought a house worth a million dollars, the property tax will be based on your previous $200,000 base on the first $900,000 with the remaining $100,000 taxed at the normal rate.
This benefit also works for the severely disabled or for victims of wildfires or other natural disasters.
Proposition 19 also affects seniors negatively in how inheritances are handled:
- Previously, you and your spouse could transfer your primary residence and up to $1 million per parent of other property to your children without any of those properties being reassessed for new taxes. For example, assume that $200,000 home that you bought in 1980 is now worth $2 million. If you left that home to your son, he would only pay property tax on the $200,000 base and not the $2 million. Any other property, such as a vacation home, that you left to your child, would also be taxed at the old rate, as long as it was worth less than $2 million.
- After Proposition 19, if you transfer a principal residence to your daughter after February 15, 2021, the property retains the old tax base only if she uses it as her principal residence immediately after the transfer. Other properties, except for the vaguely defined “family farm” will be assessed at the standard current rate.
In addition, transferred properties only qualify for the assessed value at the time of the transfer plus $1 million. Even if your child moves into the now $2 million house as the principal residence, only the initial $200,000 plus $1 million is assessed at the old rate. The remaining $800,000 is taxed at the current regular tax base. If the offspring decides not to move into the house, the property will be assessed at the full $2 million value.
As for the additional vacation home that you leave to loved ones, that will now be assessed at its full current value.
Find out exactly how Proposition 19 can affect you and your finances, by contacting your financial and legal advisor.