Proposition 19, or Prop 19 for short, is a new law that has been introduced in California. It has been a topic of discussion in the state since it was first introduced, and it has caused some confusion among Californians. In this blog post, we’ll discuss Prop 19 rules in California and what they mean for property owners.
What is Prop 19?
Prop 19 is a constitutional amendment that was passed by California voters in November 2020. The proposition has two main components:
- Property tax transfers: Prop 19 allows eligible homeowners who are 55 or older, severely disabled, or whose homes have been destroyed by wildfires or other natural disasters to transfer their property tax base to a new home anywhere in California.
- Inherited property: Prop 19 also changes the rules for inheriting property. Under the new rules, inherited properties that are not used as the primary residence of the inheritor will be reassessed to market value for property tax purposes when they are transferred.
Prop 19 Property Tax Transfers
Under the old rules, eligible homeowners could transfer their property tax base to a new home of equal or lesser value within the same county or to a county that accepts such transfers. Prop 19 expands this provision to allow eligible homeowners to transfer their property tax base to a new home of any value, anywhere in the state.
To be eligible for a property tax transfer, the homeowner must be 55 or older, severely disabled, or their home must have been destroyed or substantially damaged by a natural disaster. Additionally, the new home must be purchased or built within two years of selling the old home.
Prop 19 Inherited Property Rules
Under the old rules, inherited properties were generally reassessed to market value for property tax purposes only when they were transferred to a new owner who was not the deceased owner’s spouse or registered domestic partner. Prop 19 changes this rule in two important ways:
- Reassessment upon transfer: Under the new rules, all inherited properties that are not used as the primary residence of the inheritor will be reassessed to market value for property tax purposes when they are transferred.
- Parent-child exclusion: The new rules do provide an exemption from reassessment for transfers of a primary residence between parents and children. However, the exemption only applies if the child uses the property as their primary residence and the value of the property is less than $1 million above the assessed value at the time of transfer.
What Do These Changes Mean for Property Owners?
For eligible homeowners, Prop 19 provides greater flexibility when it comes to transferring their property tax base to a new home. This could be particularly useful for retirees who want to downsize but remain in California, or for those who have been displaced by natural disasters.
However, the changes to inherited property rules could have a significant impact on property owners. Under the new rules, inherited properties that are not used as the primary residence of the inheritor will be reassessed to market value for property tax purposes when they are transferred. This could result in significantly higher property tax bills for those who inherit property and choose not to use it as their primary residence.
The parent-child exclusion does provide some relief for those who inherit a primary residence from their parents. However, the exemption only applies if the child uses the property as their primary residence and the value of the property is less than $1 million above the assessed value at the time of transfer. This means that those who inherit more valuable properties may still face higher property tax bills.
Conclusion
Prop 19 has introduced significant changes to property tax rules in California. Eligible homeowners now have greater flexibility when it comes to transferring their property tax base to a new home. However, inherited properties that are not used as the primary residence of the inheritor will be subject to higher assessed tax value. Reach out to a Real Estate Attorney or your CPA for your specific situation and consult the California State Board of Equalization for further guidance.