Prop 19: Saving on Property Taxes When Moving in California
How Prop 19 Can Help You Save on Property Taxes
If you’re a homeowner in the Monterey Bay Area, Prop 19 could save you money on your property taxes when you sell your home and buy another.
Prop 19 is a California ballot initiative that went into effect on April 1, 2021. It helps homeowners who are over the age of 55, severely disabled, or victims of wildfires and natural disasters to move to a new home without incurring a property tax hike.
If you are eligible under Prop 19, you can keep your original Prop 13 tax base when moving to a home of equal or lesser value anywhere in California. You can also secure an adjusted tax rate based on your Prop 13 tax base when moving to a more expensive home anywhere in California.
California Prop 13 and Prop 19
Reminder: Prop 13 is why Monterey Bay homeowners who have owned the same property for decades pay significantly less property tax than their newer neighbors.
Thanks to Prop 13, property taxes in California are generally assessed at the time of sale, gift, or bequest and raised no more than 2% per year. Since 1978 when Prop 13 was adopted, property values have frequently increased far more than 2% per year, making the initiative a huge tax savings for Californians over the past four decades.
(Back in 2003, Warren Buffet announced that he paid over $14,000 in property tax on his modest $500,000 home in Omaha, Nebraska, and just over $2,000 in property tax on his home in California worth $4M - a rate of 2.9% and 0.056% respectively.)
Now that Prop 19 is in effect, your "locked-in" property tax assessment base of Prop 13 can be transferred from your current home to your next home anywhere in the state. However, this won't apply to every California homeowner. Let's look at who is eligible under Prop 19.
Who Is Eligible Under Prop 19?
Eligibility to transfer the taxable value of a primary residence to a replacement primary residence applies to California homeowners who are:
- Age 55 or over
- Severely disabled
- Or whose homes were destroyed by wildfire or natural disaster
Eligibility also extends, in some cases, to children and grandchildren. Before Prop 19, property transfers were exempt from reassessment if the property was to be used by the family member as a principal residence, or if its value was $1M or less. Now under Prop 19, a property is exempt from reassessment if:
- It continues as the family home of the transferee or is a family farm.
- It is being transferred from a parent to a child or grandparent to a grandchild.
- The transfer is completed within one year.
However, if the assessed value of said family home is more than $1M over the original taxable value, then the new taxable value will increase. In that case, the new taxable value will be the new assessed value minus $1M.
Prop 19 Tax Benefits
Eligible homeowners in California can take advantage of Prop 19 to:
- Keep your original Prop 13 tax base when moving to a home of equal or lesser value anywhere in California.
- Secure an adjusted tax rate based on your Prop 13 tax base when moving to a more expensive home anywhere in California.
- Transfer your original tax base to a new home up to three times, or up to six times for married couples (if you plan to move that often!)
Wasn't that always the case?
No! Before Prop 19, eligible California homeowners could transfer their Prop 13 tax base under Props 60 or 90, but with more restrictions.
You could do so within the same county under Prop 60, or in another county that accepts inter-county tax basis transfers under Prop 90. This was only allowed for new home purchases of equal or lesser value than your current home, and it was allowed only once.
Now under Prop 19, you can transfer your tax base to a new home anywhere in the state, to a property of lesser, equal, or greater value, and you can do so up to three times.
In practice, the benefits of Prop 19 may look something like this:
As a Prop 19 eligible homeowner, you sell your current home for $1M. At the time of sale, your assessed home value is $500,000 (thanks to Prop 13). You buy a new home for $1.3M, and the $300,000 difference in sales price is added to your old assessment for a new taxable value of $800,000.
Without Prop 19, your new yearly tax bill would be roughly $15,210. Under Prop 19, your new yearly tax bill would be about $9,360, or a total savings of $5,850 each year in property taxes.
Maximize Your Next Home Sale And Purchase
Prop 19 opens up some interesting opportunities for seniors downsizing to a smaller home. Or for those with family members looking to move into the Monterey Area. It also benefits Californians who are severely disabled or those who have been victims of a wildfire or other natural disaster, which is unfortunately all too common these days.
When you, or someone you know is ready to buy or sell a home in Monterey County, I'm here every step of the way, to provide expert guidance and personalized support. Feel free to reach out anytime.
Guiding You Home!