California Proposition 19 Explained

California Prop 19

Proposition 19 in California Explained

Are you living where you want to live?

Well, Prop 19 passed and it's currently in play. How will it affect you and your family?

 

Have you thought about downsizing? Or have you thought about upsizing? Or maybe even moving out of that rental that you've been paying your landlord's mortgage for all these years? Whether you're an empty nester considering selling or a buyer, you really should know about Prop 19.

 

We need to take a quick history lesson. Prop 13, passed in 1978, was designed to keep property taxes low. Ad valorem taxes were capped at 1% of the purchase price. Even if your home value went up significantly, your property taxes could only grow up to 2% per year. A side effect of prop 13 is that seniors eventually didn't want to move out of their homes.

 

Enter Prop 60/90. In 1986, Prop 60/90 was voted into play to allow homeowners to take their property tax with them, but there were a few restrictions:

  1. The new home must be located within the same county or within one of 10 select counties
  2. one could only transfer their tax bill once in a lifetime
  3. The value of the new home must be = or < the value of the original home that you sell

 

Prop 19 has two parts to it

  • Intergenerational/inherited tax transfers - addresses the loss taxation from properties willed to children/grandchildren that previously were exempt from reassessment. As of February 16, 2021, these homes will all be subject to reassessment as soon as they're transferred, unless the property is going to be used as a primary residence, or it's a family farm by the beneficiary.
  • tax portability for wildfire victims/severely disabled/over 55yo -

 

If you're a long-time homeowner, who's been looking to move out of their home, Prop 19 actually alleviates a lot of the downfalls associated with relocating your primary residence:

  1. You can move anywhere in the state of California, not just within the previously allowed 10 specific counties
  2. You can do this up to 3 times in your lifetime
  3. You can take advantage regardless of the value of your replacement property

 

OP Tax Base = $400,000

OP Sold Price = $900,000

RP Purchase Price = $1,000,000

 

New tax base = (RP – OP) + OP Tax Base

 

($1,000,000 - $900,000) + $400,000

$100,000 + $400,000

New tax base = $500,000

 

 

What was the purpose of enacting Prop 19?

  • help empty nesters and those wanting to move out of their homes for health reasons without facing a huge tax bill
  • Motivate older homeowners to move out of larger two-story homes to open up space for younger families looking to buy large homes in great school district neighborhoods, willing to take on the new tax bill to support the schools and infrastructure
  • Support the California Fire Response Fund and to have the rest of the income go toward local government

 

Will we accomplish this?

 

Maybe. Yes, we'll definitely open up inventory of larger homes.  Many of those properties are going to start coming onto the market. Empty nesters are more likely to sell their home; however, they're going to need to buy a new home. Possibly moving into smaller, single story homes. This could create competition for first-time home buyers. I’m referring to empty-nesters who can now pay cash. Others feel that it's going to increase the two story homes and decrease the single story homes, and basically it's going to be a wash since it's not going to create any new inventory.

 

What do you think?

 

visit: Californiaprop19.com

 

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