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 only transferring tax value. The proposition has not yet become law so the below discussion is from the proposed text provided by the Secretary of State’s Office. Please review the law with your accountant and/or attorney before making a decision to sell your home. https://vig.cdn.sos.ca.gov/2020/general/pdf/topl-prop19.pdf
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 the 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.
Why this is important to Empty Nest and Senior Homeowners
A Homeowner who purchased their house 30 years ago for $100,000 probably has a taxable value just under $200,000. In Southern California (especially Woodland Hills, Calabasas or West Hills) their house is probably worth approximately $1,000,000. Property tax on $200,000 is approx $2400 per year and for $1,000,00 is approx $12,000 per year. This $9600 makes a big difference to someone on a fixed income.
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 the transfer to all counties in California which increases options for Home Sellers.
Big Change when Homeowner Upsizes
Under Propositions 60/90 Homeowners could not transfer the tax value to a home of greater value. It was for downsizing only. 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 Empty Nest and Senior Homeowners will not move three times after the age of 55 having the option to move multiple times from Proposition 19 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.
You might find my article 6 Mistakes to Avoid When Downsizing helpful.
For a free consultation about selling your family home in Woodland Hills, Calabasas, West Hills or the San Fernando Valley Call Janey Bishop (818)570-1144 email [email protected] or watch my videos on https://janeybishop.video/Empty-Nest-Downsizing-Playlist
Senior Real Estate Specialist, Probate Certified, Real Estate Collaboration Specialist – Divorce