In November 2020, voters in California passed Proposition 19 which makes changes to the property tax benefits for the several aspects of property ownership. Though it has created substantial benefits for homeowners over the age of 55, the severely disabled and victims of natural disasters. It has also eliminated the transfer of the lower property tax basis of a home that is transferred between parent/grandparent to child/grandchild unless the property will be used as primary residence. Here is the breakdown of changes that Propostion 19 will bring when it takes effect on February 16, 2021.
Superseding Props 60 and 90
Previously under Propositions 60 and 90, homeowners at the age of 55 or over were able to do a “one time” transfer of the property tax basis to another property that was of “equal or lesser” value either within the same county or to another county. These parameters for county transfers were different from county to county. In Southern California, they approved the ability to transfer from one county to another on their approved list of counties. Here in Sonoma County, we were only approved for transfers within Sonoma County.
What Proposition 19 has done is it has superseded both of Propositions 60, 90 and 110, rendering them obsolete as of April 1, 2021. The new parameters for “portability of tax benefits” and the homeowners this applies to, are as follows: homeowners age 55 and older, the severely disabled and victims whose home has been substantially damaged by wildfire or other natural disaster.
The changes with Proposition 19 open the parameters of movement for these categories of homeowners by allowing movement within California. Chart is courtesy of (San Francisco Assessors)
Here is the breakdown:
The new property tax basis on properties purchased at a greater value – will be calculated by this:
Value of New Home (example: $1,500,000)
Subtract the Value of Previous Home (subtract: $ 800,000)
Add in Previous Tax Basis (ex: $ 400,000)
New Tax Basis = $1,100,000
This calculation is on replacement homes that are being purchased at a greater value than the previous primary residence. This above calculation saves $5,000 annually in property tax assessment. For properties that are being purchased at an equal or lower value, the previous tax basis will apply directly to the new primary residence. For more information see the legal data here.
The effect of the property tax transfer in the above listed category actually doesn’t take effect until April 1, 2021. The limits that have been surpassed with this new proposition allows for more movement for those qualified homeowners in providing more options to them and allowing this to be done up to 3 times, instead of the prior limit of only allowing this as a one time option.
Parent/Child – Grandparent/Grandchild Exclusion
With the good, we always get the not so appealing…and with that said, Proposition 19 radically changes the inter-family transfers of property pertaining to the lower tax basis UNLESS the property transferred will be solely used as the primary residence of the family member receiver. Here is the chart (Courtesy of San Francisco Assessor) of the previous guidelines and the changes with this new proposition:
This new proposition eliminates the guidelines of the previous Propositions 58 and 193 by removing those prior tax benefits that could passed through to family. To dig deeper, the transfer of property between parent/child, grandparent/granchild, used to be that you could make a transfer of property of up to $1,000,000 without any reassessment. Now, everything will be reassessed at the present day value, unless, as stated above, the property will be occupied as a primary residence up to $1,000,000.
If however, the home is worth more than $1,000,000, it may be subject to partial or a full reassessment.
Any changes that parents or grandparents would desire to make for their families, must be made prior to the February 16th date. Even if the property is already stated to pass to children in a living trust, the trust will not protect the property from being reassessed at the time of the deceased parent/grandparent under this new proposition. This includes commercial properties as well.
Proposition 19 has actually generated more benefits than hinderances. The fact that property tax basis can move throughout California instead of being limited to specific counties will generate greater freedom of movement. On the flip side, we may have lost the Prop 13 benefit being passed to children or grandchildren unless they take on the property as their primary. But, let us not forget that inheritances are truly gifts that are given to our families and should be seen as such.