California’s Prop. 19 Explained: Who’s winning, losing or just plain confused?

Prop. 19 narrowly passed at the ballot box in November 2020 and took effect in April 2021. That means California property owners have had time to take it for a spin. In that time, the legislation has earned fans who are saving thousands on property taxes and haters who are paying thousands more and pushing for a repeal.

But, mostly, the law still lives in obscurity.

As Abio Properties co-founder and broker Cameron Platt 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.

 

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. The legislation does two things:

• Prop. 19 allows home sellers who are aged 55 and older 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. This is called a "tax basis transfer." 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). Prop. 19’s backers predict the measure now will incentivize more seniors to sell and downsize, thus increasing California’s scant family home inventory and helping address the state’s housing shortage.
• Prop. 19 also raises taxes on certain inherited and gifted family properties by closing a Prop. 13. That loophole allowed children and grandchildren who inherited property to also inherit the old property tax base, even if the current market value had increased significantly. Prop. 19 now only allow heirs to keep the family’s old property tax basis if they reside in the home (don’t rent it out) and if the property has gained less than $1 million in assessed value.

“The philosophy (behind Prop. 19) was to help spur home sales,” Cameron told Chronicle writer Kathleen Pender. While Cameron 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 in practice the Bay Area

Since the legislation took effect, all nine Bay Area counties reportedly have seen 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 tax basis transfers applications – a whopping 833 in the first 12 months, according to the SF Chronicle.

Top reason given for a transfer? Following adult children and grandchildren who moved to the East Bay because they got priced out of San Francisco, San Mateo, and Santa Clara counties.

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 informed 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 when they buy their next home, the Chronicle spoke to another older East Bay couple that saved more than $5,000 a year when they sold their Alameda home and transferred their property tax basis to a home they purchased in Tiberon (Marin County).

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. We hope you find your answers in our Prop. 19 FAQ section below. In addition, we always recommend you consult with a qualified CPA, real estate attorney, tax advisor, or estate planner before making property decisions potentially affected by legislation.

Prop. 19 FAQS: Base Year Value 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, C.A.R.’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.

1. 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).
2. Add the difference to the original home’s tax basis. In this case, the sum is $300,000 ($50,000 + $250,000).
3. 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. Source

Prop 19 FAQs: Intergenerational Transfers

How w 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. In that case, the heirs’ tax bill was based on a 1975 assessment, even though the ocean-front property’s value had significantly increased by the time the kids took it over. 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.

Now 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 assessed value of the property at the time of transfer minus $1 million. Source

Do heirs have to live in the inherited home, or can they rent it out?

A home gifted by parents or grandparents must be the heir’s primary residence. If you rent it out, 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.

If I still have questions about Prop. 19, who do I contact?

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.

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Abio Properties is a boutique real estate agency with offices in Oakland, Lafayette, and Walnut Creek. To learn more, contact us at 888-400-ABIO (2246) or [email protected]

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