California Prop 19- What is it and how will it affect you in real estate?

Prop. 19 marks a huge change to Prop. 13, the 1978 law that aims to limit property taxes. It was passed by California voters in the November 2020 election.

There are two components of the proposition: both a positive and a negative, one is for a homeowner’s ability to sell and buy a different property and transfer their tax basis with them.  The other is about inherited properties and how they are treated in property tax basis.

1. Eligible homeowners can now transfer their tax base anywhere in California, even with a property of greater value
   • With a more expensive property than sold it will be a benefit as a blended value. For example, if someone sold a home with an assessed value of $150,000 for $900,000 and bought a new home for $1,250,000, the new assessed value will blend the old value of $150,000 with increase of the new home, in this case $350,000 more in price, making a new combined assessed value of $500,000.  If the new home is equal to or less than the previous sold home, it remains the same assessment as before.
   • Eligible homeowners are:
     • Person who is 55 years old or older
     • Person with severe disabilities
     • Person who lost home in a natural disaster

• • This now can be done up to three (3) times- before it was only one time.

2. This new law requires market value reassessments for inherited properties that are NOT used as the heir’s principal residence.
   • Beginning Feb 16^th 2021, children who inherit property from their parents are affected
     • If child keeps the property AND lives in it as their PRIMARY RESIDENCE, then up to $1 million of the reassessed value will be excluded from the new basis.
     • If they keep it as a second home, vacation home or a rental property, then the property will be reassessed to current fair market value for property taxes.

My advice- get with your estate attorney and CPA to get legal and tax advice about what to do. Should you transfer the property now? How does that affect the taxation of income property’s revenue if you do transfer it?  In any case, you only have until February 16^th 2021 to actually do it, so now is the time to seek that advice. I have CPA’s and Tax advisors if you don’t so call me anytime to get a referral at (714) 293-4786.

Mike Rains

Re/Max TerraSol

Huntington Beach, CA. 92648

www.mikerains.com

Mike@MikeRains.com