The provisions of California’s Proposition 19 – now more commonly known as the “Death Tax” by its opponents – went into effect on February 16, 2021, for intergenerational transfers and on April 1, 2021, for base year value transfers.
At Bridges 8 Real Estate, we want to educate property owners about the many provisions of Proposition 19 so that you can plan accordingly.
What other laws were in place before Proposition 19?
Proposition 13, which passed in 1978, restricted assessed values to 2% per year unless there was new construction or a change in ownership. Then, in 1986, Proposition 58 passed, protecting family properties from reassessment when transferred between parents and children.
What is Proposition 19?
Proposition 19 passed by a slim majority on November 3, 2020, and made several changes to California property taxes:
- Homeowners aged 55 and older, severely disabled homeowners, or victims of natural disasters, wildfire, or hazardous waste contamination can purchase a new home anywhere in California and retain their prior home’s tax assessment a maximum of three times during their lifetime
- Parent-child and grandparent-grandchild exclusions to property reassessment have ended as we used to understand them before proposition 19 was enacted into law, unless the recipient (qualifying family member) will be using the property as a family farm OR as their primary residence for as long as they reside there or continue to utilize the property as a family-farm. Should the qualified heir move, and or cease family-farming, the property would be subject to property tax reassessment at market value. As we continue to understand this new law, it is our understanding that there is no time period of residing in the property that would exclude this reassessment, should the qualifying family member not reside in the property as their primary residence.
- Originally, the base year transfer value of a principal residence could be enacted within the same county but not from one county to another. Now, the base year transfer value can be enacted in any county in the state of California.
- Originally, in prop 13, the value of replacement property had to be equal or less than original property for property owners buying and selling to avoid property tax assessment increases.
Until today, with new purchases for 55+ year old buyers selling and buying properties, the new tax rate WAS simply assessed at the new property sale price, according to the rate each city and county’s tax assessments are set. There were a few exceptions within certain counties of California, and counties sharing tax basis reciprocity, those are now moot and any qualifying trade ups and or downs are treated equally as outlined in proposition 19.
If I’m over 55 but my legal spouse isn’t, can we still take advantage of the “55+” protection?
Yes, you can. To qualify, one of you must be 55 or older when selling your original property – and you must complete your purchase of the second property within two years of that sale (either before it or after it).
Are there specifics on the “natural disaster” qualifications?
Yes – as per the Proposition language, the term “victim of a wildfire or natural disaster” is defined as the owner of a primary residence that has been substantially damaged by a wildfire or natural disaster, and that damage amounts to more than 50 percent of the improvement value of the primary residence immediately before the wildfire or natural disaster.
Does the blended replacement property value happen automatically, or do qualified families have to take a specific action?
Seller-Buyer-Transferor must complete an application requesting this adjusted valuation for your new property, or you will be surprised with your new tax bill. According to a 2022 report by the Los Angeles Times, tax assessor offices are backlogged with applications. In the interim, property owners are responsible for paying the taxes assessed.
What if we want to transfer a rental property or second home?
Prop 19 does not apply to transfers of rental properties, only primary residences. If a home will not be used as a personal residence by a family (child, grandchild) within a year of the transfer, the property taxes for the subject property will be reassessed at the current market value, as of the date of transfer or change in ownership.
What if we have a trust?
Trusts can be revocable or irrevocable, and they are funded while the giftee is still living. Unfortunately, a revocable trust will not prevent reassessment under Proposition 19.
What if we made our property transfers or replacements or purchases on the heels of a devastating property disaster that took place before April 2021?
If the replacement primary residence is purchased or constructed post-enaction, the disaster date shouldn’t be an issue. We encourage you to seek legal counsel to ensure that you get answers for every unique situation.
Are there currently any efforts to repeal Proposition 19?
The Howard Jarvis Taxpayers Association is currently leading an effort to gather more than a million signatures by April 15, so that a repeal can make it on the 2022 ballot. Regardless of the outcome, we want you to be informed and ready to make the best possible decisions – using the best possible strategy.
At Bridges 8 Real Estate, we have the expertise and energy to deliver the results you want for all of your real estate needs. Whether you’re buying, selling or happen to be curious about your property value, our team can provide valuable insight and help guide you on your journey. To learn more about how Proposition 19 can impact you and your family, we encourage you to contact a property attorney and to visit https://boe.ca.gov/prop19/ to access the most current information.