Prop 19: California Voters Give Seniors Some Property Tax Relief!
Many California homeowners have desired to downsize from their large family home to simplify their life, reduce maintenance needs/cost, and perhaps move closer to family. Often, those goals have been shelved due to budget limitations because of the increase in property taxes that typically come with a newer, more expensive home.
With the passage of Proposition 19, a homeowner who is over 55 years of age, severely disabled or whose home has been substantially damaged by wildfire or natural disaster, may transfer the taxable value of their primary residence to a replacement primary residence anywhere in the state of California. The taxable value transfer is available regardless of the value of the replacement primary residence although there will be an adjustment should the value of the replacement property be greater. The subsequent purchase must be made within two years of the primary residence sale and you can exercise this transfer up to three times.
Proposition 19 will supersede the old rules which limited this exemption to the sale and purchase of a principal residence within the same county (Proposition 60) or between certain counties (Proposition 90) -- but only if the replacement property was of "equal or lesser value" and only one time.
Purchases and Sales Before April 1, 2021
Although I believe that the tax benefits under Proposition 19 will apply to transactions where either the sale or purchase of a primary residence takes place before April 1, 2021, as long as the subsequent sale or purchase takes place within two years and on or after April 1, 2021, others have taken the position that both the sale and purchase must occur on or after April 1st, 2021. Currently there is no definitive answer and therefore, if you are considering a transaction prior to April 1, 2021 please seek advice of a qualified California real estate attorney or tax advisor.
New Rules on Intergenerational Family Transfers and Family Farms
Proposition 19 also changes the rules on exemptions from reassessment for intergenerational transfers. The new law limits the exemption to the transfer of a primary residence to a child (or grandchild) only when the property continues to be used as a family home by the child or grandchild. Even then, if the divergence between the taxable value and the actual value is too great, a partial increase in the new taxable value will be imposed. Proposition 19 also includes provisions that would allow the transfer of a family farm to retain its taxable value. These new rules apply to any purchase or transfer beginning February 16, 2021.
Proposition 19 is a win-win for California homeowners, especially for seniors, by providing tax relief for those seniors who wish to downsize or move closer to family and have been unable to do so due to the property tax burden. The measure also provides relief to wildfire victims and will generate much needed revenue for schools, fire districts, cities, and counties when they need it most. Please visit proposition 19 overview for additional details and answers to other questions you may have.