The passage of Proposition 19 increases options for the transfer of taxable value for Homeowners 55+/disabled plus victims of disasters effective April 1, 2021. This article is not addressing victims of disaster or the impact on inherited property.
History of CA Property Tax
Prior to 1976 property tax amounts in CA were set each year. Because there were wide fluctuations some Homeowners (especially seniors and those on fixed incomes) were forced to sell their homes because they couldn’t afford the increased taxes for that year. In 1978 Proposition 13 set a system based on 1976 value for property tax amounts which could only increase up to 2% per year unless the house was sold or had major construction done. This system helped Homeowners at the time with a consistent tax amount but over the long term restricted some Homeowners from selling their homes. As property values increased the tax value of a newly purchased home would be based on their purchase price which would be much higher than the tax value of their current home. To address this Proposition 60 in 1986 allowed Homeowners 55+/Disabled to transfer their tax basis when they purchased a home of lesser or equal value in certain counties. This allowed Empty Nesters and Seniors to downsize to a more manageable house and move closer to family or friends.
Small change when Homeowner Downsizes
Under Propositions 60/90 Homeowners were able to transfer their taxable value to a replacement property of equal or lesser value than the fair market value of the home they are selling. Fair market value is generally the sale price of property in an open market transaction (not family sale, part of another transaction,…). Previously there was a limitation allowing transfer within the ten counties who allowed the transfer which Proposition 19 expands to all counties in California.
Big Change when Homeowner Upsizes
Under Propositions 60/90 Homeowners could not transfer the tax value to a home of greater value. Under Proposition 19 if the price of the replacement property the Homeowner 55+/Disabled purchases is greater than the fair market value of the home they are selling the taxable value will be increased by the increase in price. As example, if the family home with a
taxable value of $500,000 is sold for $1,000,000 and replacement home purchased for $1,200,000 then the transferred tax value when approved would be $700,000 (from previous $500,000 tax value plus increased difference in price of $200,000). Without Proposition 19 the new taxable value would have been $1,200,000 so the benefit is clear.
Benefit of Three Transfers
While many Homeowners will not move three times after the age of 55 having the option to move multiple times relieves a lot of the stress about making a perfect decision for the one allowed transfer.
The Homeowner notifies the county when sale and purchase are complete to apply for the transfer of taxable value. For more information go to https://www.boe.ca.gov/proptaxes/prop-tax-rules.htm
If you would like more information please call me (818)570-1144 or email [email protected]
You might find my article 6 Mistakes to Avoid When Downsizing helpful.
Senior Real Estate Specialist Real Estate Collaboration Specialist – Divorce
Certified Divorce Real Estate Expert Probate Certified
