California Proposition 19, passed by voters in November 2020, has significant implications for homeowners across the state. This proposition brings about changes to property tax rules, particularly concerning property transfers and tax assessments. In this blog post, we'll take a quick look into the key aspects of Proposition 19 and what it could mean for homeowners in California. I am not an accountant or an attorney; this blog post is meant as an overview to help you consider some of the variables and is not intended to include all the details or the implications. When making plans related to Proposition 19 always consult your CPA and an attorney.
Property Tax Transfers for Homeowners Age 55 and Older
- Proposition 19 allows homeowners aged 55 and older, as well as disabled individuals, to transfer the property tax base of their primary residence to a replacement primary residence anywhere in California.
- This benefit can be used up to three times in a lifetime, providing eligible homeowners with greater flexibility to downsize, relocate, or move closer to family members without facing significant property tax increases.
Inherited Properties and Parent-to-Child Transfers
- Proposition 19 also makes changes to parent-to-child property transfers and inheritance rules. Under the new law, inherited properties not used as the heir's primary residence may be reassessed based on current market value.
- However, eligible homeowners may still be able to transfer their property tax base to a primary residence inherited from a parent, provided certain conditions are met, such as the property being used as the heir's primary residence.
Effective Date and Implementation
- Proposition 19 went into effect on February 16, 2021, with certain provisions retroactively applying to transfers occurring on or after April 1, 2021.
- Homeowners should familiarize themselves with the specific requirements and deadlines associated with Proposition 19 to ensure compliance and take advantage of available benefits.
Potential Impact on Homeowners
- While Proposition 19 offers valuable benefits to eligible homeowners, it's essential to understand its potential impact on property taxes and estate planning strategies.
- Homeowners may need to reassess their long-term housing plans, tax implications, and estate planning strategies in light of the changes brought about by Proposition 19.
Seeking Professional Guidance
- Given the complexity of Proposition 19 and its implications for homeowners, it's advisable to consult with a qualified real estate attorney, tax advisor, or estate planning professional to understand how the law affects your specific situation.
- These professionals can provide personalized guidance and assistance in navigating the intricacies of Proposition 19 and making informed decisions regarding property transfers, tax planning, and estate administration.
I am sure there are many ramifications of Proposition 19 that I have not mentioned here, but there are two main issues clients have repeatedly brought up to me when considering it. They are as follows:
Important Consideration Number 1: The main aspect of Proposition 19 that homeowners may not like is its limitation on property tax transfers for inherited properties. Under Proposition 19, it is my understanding that inherited properties not used as the heir's primary residence may be subject to reassessment based on current market value. This change could result in higher property taxes for heirs inheriting properties such as vacation homes or rental properties. Older homeowners may be concerned about the potential impact on their heirs' ability to afford the property taxes or retain the inherited property.
Important Consideration Number 2: Under Proposition 19, it is my understanding that homeowners aged 55 and older can transfer their property tax base to a more expensive home if certain conditions are met. Specifically, suppose the new home's market value exceeds the market value of the homeowner's current primary residence. In that case, the property tax base will be adjusted based on the difference in value between the two properties. This means that the homeowner will retain some of their current property tax base, but they will also pay higher property taxes based on the additional value of the new home. However, Proposition 19 still provides a tax benefit compared to traditional property tax rules, as it allows older homeowners to transfer their property tax base to a replacement primary residence anywhere in California, thereby potentially reducing their property tax liability compared to if they were subject to a reassessment based on the new home's market value without the benefit of Proposition 19.
California Proposition 19 introduces significant changes to property tax rules and inheritance laws that impact homeowners throughout the state. By staying informed about the provisions of Proposition 19 and seeking professional guidance when needed, homeowners can effectively navigate these changes and make informed decisions regarding their real estate assets and financial planning.
Don't let uncertainty hold you back. Let's unlock the potential of Proposition 19 together and ensure that you're making informed decisions about your real estate assets and financial future.
Reach out to schedule a consultation today, and let's navigate the opportunities of Proposition 19 together!
Oliver Burgelman
415.244.5846
