In November of 2020, California voters narrowly passed Proposition 19. It was one of two propositions on the ballot related to property tax. The other measure, Proposition 15, failed. What should homeowners and their beneficiaries know about Proposition 19?
The impact of Proposition 19 can be positive, negative, or neutral depending on your individual situation.
Let us start with the positive. Beginning in April of 2021, if you are over age 55, severely disabled or your home was destroyed by a wildfire or disaster, you may be able to transfer your property tax base value of a primary residence to a replacement residence in California. This was available already in a few counties and Proposition 19 makes it statewide. There are of course a couple rules. Those 55 and over as well as the severely disabled can only transfer their property tax base a maximum of 3 times. And if the replacement residence is of higher value then the new property tax base will be the previous base value plus the difference in value between the two residences.
The goal is to facilitate older California residents who want to move closer to family or downsize to not be limited by a potential property tax increase.
Someone who inherits a property and holds onto it but does not make it their primary residence is negatively affected by this Proposition. If the home will be a vacation home or put into service as a rental property, the property tax value will be reassessed at current market value.
Note that Proposition 19 is addressing property tax base not basis for income tax purposes when the home is sold. Which leads us to the neutral camp. Anyone inheriting their parent’s (or grandparent’s) home receives a step-up in basis for income tax purposes. If the house is sold in the near term the property tax base will not come into play. And as noted earlier if the beneficiary makes the home their primary residence, they are able to maintain their parent’s (or grandparent’s) property tax value up to $1,000,000 over the current assessed value.
If you plan to pass on your home to your children to use as a vacation home or put into service as a rental property you should consult with your tax and/or financial advisor. For seniors, who have been wanting to move to a different home in California but stayed put because of their current low property tax base, beginning in April of 2021 Proposition 19 makes a move possible.
One a final positive note – any increased government revenue generated by this proposition is to go toward fire protection services.