Prop 19: Why Seniors Plan to Sell Their Homes
This week, certain provisions of Prop 19 took effect that affected taxes on properties passed down from parents and grandparents.
Proposition 19 has now passed in California. Prop 19, the Family Home Protection and Fairness in Property Tax Reassessment Act was voted in last November and is a landmark proposition attempting to stabilize property taxes dating back to the 1970s.
Previously, a child or grandchild could inherit a property with no change to the property tax amount. As of February 16, that exemption from reassessment applies only while the heir is using the property as their PRIMARY residence. Plus, it only applies if the heir claims a homeowner’s or disabled veteran’s exemption within one year of the transfer. Once the property is no longer a primary residence, the property will be reassessed.
If those heirs do NOT live in the inherited house, they will begin to pay the current assessed value, which could be thousands of dollars more.
The passage of Prop 19 marks a significant change to property tax law as parents/grandparents have been able to pass down their previously assessed value onto their children as a way to generate wealth.
Here’s how it worked:
When you buy a home in California, the property is typically at market value. Previous law required that the market value be assigned as the home’s base-year value when determining the assessment of real property. As value of the property went up, the tax assessment remained the same. See?
There is a second part you need to know about Prop 19. Homeowners can transfer their ORIGINAL home’s taxable value to a replacement property if purchased prior to April. The replacement home does NOT have to have equal or lesser value. Prop 19 has provisions for an adjusted rate in a circumstance where the value is greater.
Homeowners must be at least 55 years of age, disabled or victims of natural disasters. Prop 19 expands benefits for these homeowners when they sell their home and purchase a new one by applying the base property tax of the original property to the new property. Confused, yet?
Seniors will now be able to transfer their assessed value anywhere within the state and allow the tax-base-year assessed value to be transferred to a more expensive home with an upward adjustment. They can also do it to up to three replacement properties.
Will this encourage long-time homeowners to sell? Time will tell.
If you are interested in learning more about selling your long-term home and applying the tax-base to your new home, give us a call and we can walk you through it.