Hands holding a house surrounded by stacked gold coins
Tanya Steinhofer No Comments

One of the dozen state propositions on the California ballot this year was Proposition 19. It was one of two propositions to address property taxes. It passed with 51% voting in favor, while the other property tax-related proposition, Prop 15, failed. What does Prop 19 mean for California homeowners?

The proposition has two impacts, one with positive implications and one with negative implications for California homeowners.

  1. Positive. For those over age 55, starting April 21, 2021, they will be able to transfer the property tax basis of their current home to a new home of any value, up to three times during their lifetime, anywhere within the state of California. If the replacement property has a higher value than the original home, the assessed value for property taxes will be a hybrid of the current assessed value plus the tax basis on the increased value of the home, resulting in a tax basis that is lower than the full fair market value of the new residence. The old rule was limited to a few counties, only once in a lifetime and only up to the value of the existing home. This change will allow seniors who feel trapped in their current home by its low property taxes to move to be closer to loved ones (within California) or downsize without incurring a big increase in property taxes.
  2. Negative. The other aspect of Prop 19 is less positive. It deals with parent-child (or grandchild) transfers. Under current law, children can inherit the parent’s primary residence and up to $1M of assessed value of other real estate and inherit the parent’s property tax basis. Under Prop 19, starting February 16, 2021, the only exclusion from reassessment is for the primary residence, only if the child makes it their primary residence, and only up to $1M over the current assessed value. Excess value will be reassessed. The parent-child exclusion for real property other than a principal residence (e.g., vacation home, rental property) is eliminated and this real estate will be reassessed at fair market value. If your estate plan relies on the parent-child exclusion to avoid reassessment of California real property at death, you should contact your estate attorney immediately to see what your options might be.

For seniors who’ve been wanting to move to other parts of California, but felt trapped by their very low property tax basis, Prop 19 brings relief, after April 2021. For families who were counting on passing on the low property tax basis of their home to their children, Prop 19 has made that significantly more difficult and less attractive. There are limited options, but time is of the essence, so contact your estate attorney as soon as possible.