- Permits homeowners who are over 55, severely disabled, or whose homes were destroyed by wildfire or disaster, to transfer their primary residence’s property tax base value to a replacement residence of any value, anywhere in the state.
- Limits tax benefits for certain transfers of real property between family members.
- Expands tax benefits for transfers of family farms.
- Allocates most resulting state revenues and savings (if any) to fire protection services and reimbursing local governments for taxation-related changes.
Who will be affected?
In short, Prop 19 affects California homeowners, inheritors, firefighters, and local governments. California homeowners may now transfer their tax base and move into a new home, but inheritors will face new liabilities on properties they receive from parents and grandparents. On the other hand, the California State Controller must deposit 75 percent of the calculated revenue to the Fire Response Fund as well as 15 percent to the County Revenue Protection Fund.
What will be the effect on homeowners?
Most California homeowners can transfer the tax basis of a sold primary residence to a replacement primary residence up to three times. (On the other hand, for those homeowners whose homes have been destroyed or substantially fire-damaged, these transfers are unlimited.) Indeed, the tax base remains the same if the replacement home is of equal or lesser value. These transfers must occur within a two-year period, and homeowners may purchase their new residence before their current residence sells.
What if the new home is more expensive than the sold home?
In these cases, the new tase base is:
[value of new home – value of old home] + [old tax base] = [new tax base]
Let’s say that a homeowner with a tax assessment of $800,000 on their house sells for $1,200,000, and then moves to a home worth $1.5 million. So here, the new tax base is the difference in value ($400,000) plus the original home’s tax assessment ($800,000), which adds up to $1,200,000.
What will be the effect on inheritors?
As long as the property is still used as a primary residence, inheritors can retain the existing tax base. After that, inheritors may be subject to some upward adjustments if the new property value is more than $1M over the original tax basis. (In addition, family farms are exempt from these restrictions.)
When will these changes take place?
Above all, Proposition 19 will go into full effect on April 1, 2021. But to clarify, the family transfer rules will take effect on February 16, 2021.
How will Prop 19 affect purchases and sales made before April 1, 2021?
This is still up for interpretation, but here is the perspective from the California Association of Realtors:
“Although we believe that the tax benefits under Proposition 19 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. C.A.R. will seek official clarification of this issue.”