How Will the Passing of Prop 19 in California Affect Me?

It’s no secret California home and real estate values have skyrocketed over the past decade. According to Zillow.com, home values increased nine percent over the course of 2020 and are projected to grow another ten percent over 2021. Great news for current homeowners who are happily enjoying their homes. Not so great news for those looking to buy a new home. Californians, though, are no strangers to increased property values, as evidenced by Proposition 13 (Prop 13) which limited property taxes on homeowners all the way back in 1978. However, with the passing of Proposition 19 (Prop 19) in November 2020, the property tax game is changing once again.

Prop 19 for the Downsizers

Maybe the kids moved out and you need a smaller place. Perhaps you just can’t handle cleaning the house like you used to. You may even be in need because your home was destroyed by a fire or flood. Whatever your reason is for seeking a new house, you don’t need to worry as much about the rocketing property values anywhere in California. Individuals who are 55 years or older, are victims of a natural disaster (like earthquake or wildfire), or are severely disabled and want to purchase a new home can do so with the knowledge that they won’t be taxed into oblivion simply because the home they chose to buy is now valued higher than what they initially purchased their current home for. After all, one person can’t control property values for an entire area.

Prop 13 originally capped your property tax base for your current home at its value at the time of purchase. For example, if you bought a $150,000 home in the 80s, you only paid taxes on a $150,000 home, even if your home were now worth $300,000. However, it didn’t protect you when you chose to buy a new home unless you hand-picked a county that did the same. Prop 19, on the other hand, extends the same courtesy to your next three subsequent homes anywhere in the state of California. So, that $150,000 home that grew in value to $300,000? You can purchase another home worth $1 million or less and continue to be a part of the $150,000 tax base.

Prop 19 for the Upgraders

Whether you’re part of a growing family needing more space or are looking to move a little closer to the beach, Prop 19 also protects your hard-earned money to prevent you from experiencing obscene hikes in your property taxes when you decide to buy a home that is worth significantly more than your current one. For instance, you may have purchased your current home in the 90s, and the assessed value has steadily increased over the years to $800,000. However, you need more space now because your elderly parents are coming to live with you and decide to sell your current home for $1.25 million.

You find the perfect place valued at $1.5 million. With Prop 19, you can blend the values of your new and old homes. So, you won’t have to experience sticker shock by being lumped into the $1.5 million property tax base after 30 years of paying from the $800,000 tax base. Instead, you’d pay on the $800,000 assessed value of your previous home plus the $250,000 difference in sale price and purchase price. All told, you pay as part of the $1,050,000 property tax base rather than the $1.5 million base. That’s net savings for you.

Prop 19 for the Inheritors

Unfortunately for children who will be inheriting real property after February 16, 2021, Prop 19 is not as kind. Before the passing of this law, parents could transfer property to their children with no reassessment of value – meaning children would pay the same property taxes their parents did on the property regardless of how the children used the home. Additionally, if parents transferred a secondary property like a vacation home, professionals would reassess the property and up to $1 million would be deducted from the property tax base of the inherited property.

Once Prop 19 goes into effect on February 16^th, though, all parent-child property transfers will be reassessed for value and the parents’ tax base will not transfer. If the child chooses to use the inherited real property as their primary residence, the law allows the $1 million deduction in property tax base but the child must pay on remaining value of the home. If the child chooses not to use the property as a primary residence, assessors assess the property as normal and the child pays the assessed value as their property tax base, which may help determine whether the child will keep the home at all.