Prop. 19 Explained: Who’s Winning, Losing or Just Plain Confused About the Property Tax Overhaul
California’s Prop. 19 narrowly passed at the ballot box in November 2020 and took effect in spring 2021, reshaping today’s property tax laws. It gives breaks to older homeowners while increasing taxes on certain inherited and gifted family properties.
Property owners have had more than a year to take Prop. 19 for a spin. What’s the verdict?
Well, the way we see it, Prop. 19 has earned fans who are saving thousands on property taxes and haters who are paying thousands more and pushing for a repeal. But mostly, Prop. 19 still lives in obscurity.
As Abio Properties co-founder and broker Cameron Platt recently told the San Francisco Chronicle, many homeowners are just learning about Prop. 19’s potential effect on their home sales and property transfers.
If you fall into the “Prop. 19, what’s that?” camp, you’re in the right place. Let’s get you caught up because what you don’t know could cost you.
What is Prop. 19?
Prop. 19 is a constitutional amendment to California’s controversial Prop. 13 and was backed by the California Association of Realtors (CAR). The legislation does two things:
- Prop. 19 allows home sellers who are aged 55+ or severely disabled or lost their home in a natural disaster to sell their residence and buy a new one anywhere in California without, in many cases, experiencing increased property taxes. The law was partly designed to nudge empty-nesters out of the longtime family homes they’ve been reluctant to sell because they feared having to pay higher property taxes on their next residence (thanks, skyrocketing real estate values). With California suffering a severe housing shortage, proponents hope Prop. 19’s “tax basis transfer” provision will encourage Baby Boomers to sell, thus increasing the inventory of homes for younger families to purchase.
“The philosophy (behind Prop. 19) was to help spur home sales,” Cameron told the SF Chronicle in a recent article. While he can’t personally say whether the law has increased sales yet, “it has made it easier to talk to our clients who are eligible, calming some of their fears about how much more expensive” moving could be.
- Prop. 19 also raises taxes on certain inherited and gifted family properties by closing a Prop. 13 loophole. That loophole allowed children and grandchildren who inherited property also to inherit the old property tax base, even if the current market value had increased significantly. Now under Prop. 19, heirs only get to keep the family’s old property tax basis if the property has gained less than $1 million in assessed value.
Prop. 19 in the Bay Area
Since the legislation took effect, all nine Bay Area counties reportedly saw a jump in the number of older and disabled home buyers taking advantage of the tax basis transfer.
Among them, Contra Costa County received the most transfer applications – a whopping 833 in the 12 months ending April 1, 2022, according to the SF Chronicle.
The top reason given for a transfer? Moving to the East Bay to live closer to adult children and grandchildren (aw, sweet).
Cameron’s clients Linda and Ed Tywoniak, also interviewed by the Chronicle, said they weren’t aware of Prop. 19 when they first considered selling their Oakland home of 38 years and purchasing a place in Pleasant Hill near their kids and grandkids. But now that they know about it (Cameron told them), they plan to apply for a Prop. 19 transfer once they buy.
Initially, “most of my questions were about capital gains, to tell you the truth,” Linda told the publication. Prop. 19 “was an added incentive. Maybe it put me over the edge” in the decision to sell.
While the Tywoniaks don’t yet know how much they might save on property taxes, the Chronicle spoke to another couple who saved more than $5,000 a year when they sold their Alameda home and transferred their property tax basis to a new place in pricey Tiburon.
Prop. 19: The nitty-gritty explained
Because Prop. 19 is complex legislation, you may still have a lot of questions about how it could affect you. That’s why we included the following FAQs below. In addition, we always recommend you consult with a qualified CPA, real estate attorney, tax advisor, or estate planner. This article is intended to provide general information and is not intended as a substitute for individual legal advice.
FAQs – TAX BASIS TRANSFERS (PORTABILITY)
To qualify for a Prop. 19 tax basis transfer, do I have to buy a new home immediately after selling my original residence?
If you are at least age 55 or severely disabled or a victim of a natural disaster, you have two years from the sale date to purchase or construct your next residence. Source
Does my new residence have to be in the same county?
No. You can transfer your original tax basis to anywhere in California. Source
How many times can I move and take my property tax basis with me?
As an older adult or person with disabilities, you can do this three times individually. That means a husband and wife can do it a total of six times. There doesn’t appear to be a similar limit for natural disaster victims (of course, we’d hope no one goes through such tragedy more than once!) The replacement home(s) still has to be purchased within two years of the original property’s sale. Source
Can I transfer my base year value to a home of any value?
Yes, but… (See next question and answer.)
What if my new home is worth more than my original home? Do I still get to keep the original tax basis?
Not exactly. The California State Board of Equalization says, “If the full cash value of the replacement home is greater than the full cash value of the original home, the difference in full cash values will be added to the transferred factored base year value.”
How much more will I pay?
If the new home costs more than the home you sell, the difference in value is added to your old tax base to arrive at the new tax base. Sean Bellach, CAR’s government affairs representative, walked us through the math:
Let’s say you sell your longtime family home, which had a taxable value of $250,000, for $800,000. And then you buy a new home assessed at $850,000.
- First, find the difference between the original home’s sale price and the replacement home’s purchase price. In this scenario, the difference is $50,000 ($850,000-$800,000).
- Add the difference to the original home’s tax basis. In this case, the sum is $300,000 ($50,000 + $250,000).
- Therefore, $300,000 is your new home’s base year value.
How do I apply for a Prop. 19 base year value transfer?
File a claim with the county assessor where the replacement property is located.
FAQs – INTERGENERATIONAL TRANSFERS
How does Prop. 19 impact children and grandchildren inheriting a primary family property?
California’s Prop. 19 closes the so-called Lloyd Bridges loophole in Prop. 13, a reference to the property tax advantage the actor’s children benefited from after inheriting their dad’s Malibu home in 2009, which they then rented out for up to $15,995 a month. In that case, the heirs’ tax bill was based on a 1975 assessment, even though the ocean-front property’s value had significantly increased. Between 2009-2017, the heirs owed just $48,000 in property tax, compared to the $300,000 more they would have owed had the house been reassessed, according to an L.A. Times analysis.
Under Prop. 19, heirs can enjoy the old property tax basis only if the taxable property value at the time of transfer is not more than $1 million over that original tax basis. If the taxable property value is more than $1 million over the original tax basis, you’ll be assigned a somewhat higher property tax basis. Source
If the inherited property’s market value has grown by more than $1 million since the home was last assessed, how much more will the heirs have to pay in property taxes?
The new taxable basis will be the property’s assessed value at the time of transfer minus $1 million. Source
Do heirs have to live in the inherited home, or can they rent it out?
If you rent it out, you lose the inherited tax basis. If it’s not your primary residence, you lose the inherited tax basis. Source
What does Prop. 19 say about transferring other properties – non-primary residences – to family members?
Prop. 19 eliminates a Prop. 13 provision that allowed parents and grandparents to transfer secondary property (like a vacation home or rental property) to heirs and exempt up to $1 million in assessed value. Source
How do I apply for a Prop. 19 intergenerational-transfer exclusion?
Submit a claim form to the county assessor where the property is located. (Forms BOE-19-G for grandparent-to-grandchild transfers and BOE-19-P for parent-to-child transfers) Source
I heard an effort was underway to repeal Prop. 19. Is that true?
Yes, a partial repeal of Prop. 19 is being sought by the Howard Jarvis Taxpayers Association, which wants to overturn the inheritance provisions. However, the group recently tried and failed to collect enough signatures to qualify a repeal measure for the November 2022 ballot.
Who do I contact if I still have questions about Prop. 19?
Contact your local county assessor’s office or the Department of Equalization’s Property Tax Department by phone at 1-916-274-3350 or by e-mail.
This article is intended to provide general information about Prop. 19 and is not intended as a substitute for individual legal advice. We urge property owners to seek counsel from a licensed real estate attorney, tax advisor, or estate planner. Abio Properties has not and will not verify or investigate information provided by third parties.
Abio Properties is a boutique real estate agency with offices in Oakland and Lafayette. To learn more, contact us at 888-400-ABIO (2246) or firstname.lastname@example.org.