Today’s blog post will address the new world of Proposition 19 in California; a structure that enables the easeful transfer of property tax basis from property-to-property or among family.
Homeowners 55 years and older are eligible for an important property tax protection, and we want you to know about it!
For homeowners 55 years and older, Prop. 13 offers an integral opportunity to sell your home, buy a new home, and transfer the same property tax to your new property (despite the purchase price). If a home was bought many years ago and the property tax assessment was established on a lower home value, a homeowner can take that tax basis with them to a new property - despite the fact that the new purchase may be more expensive than the original home.
Here are the basic rules, for folks 55 years and older can transfer their tax basis up to three times among any counties in California:
- The original property must be the principal residence of the homeowner
- The replacement property may be purchased or newly constructed
- The replacement property must become the principal residence of the homeowner within 2 years of the sale of the original primary residence*
- The new taxable value is the original Prop. 13 value plus any amount paid for the replacement property over the original property’s sale price (this fact sheet has a handy illustration to outline taxable value)
*This point deserves special consideration, as we have come to realize a lot of homeowners may not be aware that they have up to 2 years to secure their new home. And similarly, if you are over the age of 55 and have recently moved from one CA home to another, you may be able to retroactively qualify for a reduction in your property tax assessment.
As you can imagine, for those over the age of 55, the annual property tax assessment advantage can be dramatic.
It’s important to note that there are accommodations for the severely disabled and disaster victims, regardless of age. Family homes, transferred from parents to children and/or grandparents to grandchildren also qualify for some tax basis protections.
Prop. 19 accommodations do not extend to vacation homes, rentals, or investment properties.
We would be remiss to not mention the criticism of Prop. 13 - an taxation structure has capped the annual increases of property tax to 2%, and has called into question California’s taxation system. Critics also suggest that Prop.13 may have a role in offering tax cuts to wealthy, white homeowners that are not available to their brown and black neighbors. While Prop. 19 essentially guts Prop. 13, it does not lift the fundamental flaws of well-intended tax design and the unanticipated consequences.
For our clients over the age of 55, we can’t overstate the importance of this opportunity! To learn more about how you can take advantage of Proposition 19, please reach out to us or a trusted tax and estate planning advisor.