How Prop 19 affects Your Property Tax

Dated: June 4 2024

Views: 4580

California passed Proposition 19, transforming tax breaks for thousands of homeowners across the state, hopefully unlocking opportunities for growth and much-needed change. The exemption is expected to help fuel home sales by encouraging those who have been reluctant to move because their property tax bills would increase sharply. 

Here’s a quick summary of the major changes for people 55+, the severely disabled, and wildfire victims implemented by Prop 19:

Starting April 1, 2021 

  • Eligible homeowners can now transfer their low tax assessments anywhere within the state. Previously, under Proposition 13, eligible homeowners could transfer their tax assessments only within counties.
  • Previously, tax assessments were limited to homes of equal or lesser market value, and now it applies to more expensive homes as well.
  • Increases the number of times people can transfer their tax assessments from one to three.

Starting February 15, 2021

  • Require inherited properties be reassessed at market value unless they’re being used as a primary residence.

According to the CALIFORNIA ASSOCIATION OF REALTORS® President Jeanne Radsick, this is a win-win for the state. “Voters passed Proposition 19 because it is a win-win for California, providing needed housing and tax relief for seniors, wildfire victims, and generating much-needed revenue for schools, fire districts, cities, and counties as they face budget shortfalls due to harmful economic impact of COVID-19.” However, the majority of the wildfire funding isn’t projected to start flowing until roughly 2025.

Market Winners and Losers

Winners: Older homeowners ready to retire

Why: There has been a consistent push to extend the benefits of Proposition 13 in order to remove barriers and disincentives for older homeowners who are naturally ready to move onto the next phase – and home – in their lives. Coupled with the seller’s market we’re experiencing, this is a particularly great time for homeowners to sell their Southern California home for top dollar.

Retiring in Southern California is an expensive endeavor, but now it’s a much more attainable goal for longtime residents. For example, a homeowner over 55 can now sell their $800,000 single-family home and transfer their tax base to purchase a $1,000,000 condo by the beach. Empty-nesters and those wanting to move for health reasons can find new homes without facing a big tax hit.

Winners: Wildfire victims who want more

Why: Provided the same opportunities as individuals 55 or older, wildfire victims now have the freedom to quite literally rise from the ashes and enjoy greater flexibility when moving on from a devastating home loss. If a family loses their home in a wildfire, they have the opportunity to purchase an even better home without facing a large tax increase. Now, with great loss can come great new opportunities as well.

Potential winners: House hunters

Why: It’s no secret that we have a housing shortage with extremely low inventory especially within more affordable price ranges within Southern California. By allowing more homeowners to take their low tax base with them, it incentivizes them to open up desperately needed inventory for potential buyers who are currently fighting over limited homes for sale and frequently getting caught up in bidding wars.

In fact, proponents of Prop 19 believe that this change could spur 30,000 people a year to move, freeing up much-needed inventory and increasing sales by about 12% among older homeowners.

Potential losers: Those who inherit investment properties

Why: Previously, individuals who inherited homes were given the same protections as older homeowners. By closing loopholes and tax breaks used on vacation houses, second homes, and beachfront rentals, estate planning is thrown into question.

Proposition 19 revises the Parent-to-Child exemptions set forth in Proposition 13, now limiting the type of transfers as well as the property tax benefit available. First of all, only a transfer of a parent’s primary residence to the child where the property remains a primary residence qualifies for the tax break. Second, the child’s assessed value is determined based on the property’s value at the time of transfer. If the property value at the time of the transfer exceeds the parent’s assessed value by less than $1 million, then the child simply takes the parent’s assessed value. However, if the property value at the time of the transfer exceeds the assessed value by $1 million or more, then the child’s assessed value is the current value of the property less $1 million. For example, if you have a primary residence with a tax base of $1.5 million, and a fair market value of $3 million, the home would be reassessed on the amount of fair market value above $2.5M ($1.5 million + $1 million).

            Orange County Assessor Details Parent to Child Exemptions

CLAIM FOR REASSESSMENT EXCLUSION FOR TRANSFER BETWEEN PARENT AND CHILD OCCURRING ON OR AFTER FEBRUARY 16, 2021

Revenue and Taxation Code Section 63.2 Property Tax Rule 462.520

For transfers occurring on or after February 16, 2021, section 2.1(c) of article XIII A of the California Constitution, implemented by Revenue and

Taxation Code section 63.2, provides that the terms "purchase" or "change in ownership" do not include the purchase or transfer of a family home

or family farm between parents and their children.

For purposes of this exclusion, a "child" means any of the following:

A child born of the parent, except a child who has been adopted by another person.

A stepchild, while the relationship of stepparent and stepchild exists.

An in-law child, while the in-law relationship exists.

A child adopted by the parent pursuant to statute, other than an individual adopted after reaching 18 years of age.

A foster child of a state-licensed foster parent.

A family home must have been the principal residence of the transferor and must continue or become the principal residence of the transferee

within one year of the date of transfer or change in ownership. For real property that is sold or gifted, the date of recording of the deed is

presumed to be the date of transfer or change in ownership. For real property that is inherited via trust, will, or intestate succession, date of

death is the date of change in ownership. For a family home, the transferee must file for the homeowners' or disabled veterans' exemption

within one year of the date of transfer or change in ownership. If the exemption claim is filed after the one-year

period, prospective relief may be available.

A family farm is any real property that is under cultivation or being used for pasture or grazing, or that is used to produce any agricultural

commodity. “Agricultural commodity” means any and all plant and animal products produced in this state for commercial purposes, including,

but not limited to, plant products used for producing biofuels, and cultivated industrial hemp (Government Code section 51201).

If the assessed value of the family home or each legal parcel of a family farm on the date of transfer exceeds the sum of the factored base

year value plus $1 million, the amount in excess of this sum will be added to the factored base year value. Beginning February 16, 2023, and

every other February thereafter, the $1 million amount will be adjusted by the percentage change in the Housing Price Index for California for

the previous calendar year, as determined by the Federal Housing Finance Agency. For further information, please see the

State Board of Equalization's website at www.boe.ca.gov/prop19.

Exclusion filing requirements:

For a family farm, this claim form must be completed, signed by the transferor(s) and the transferee, and filed with the Assessor.

For a family home, (1) this claim form must be completed, signed by the transferor(s) and the transferee, and filed with the

Assessor; and (2) an eligible transferee must file for the homeowners' or disabled veterans' exemption within one year of the date

of transfer or change in ownership.

This claim form is timely if it is filed within three years after the date of purchase or transfer, or prior to the transfer of the real property to a

third party, whichever is earlier. If a claim form has not been filed by the date specified in the preceding sentence, it will be timely if filed

within six months after the date of mailing of a notice of supplemental or escape assessment issued as a result of the purchase or transfer

for which this claim is filed.

If either claim is not timely filed, prospective relief may be available.

Orange County Assessor

500 S. Main Street, First Floor, Suite 103

Orange, CA 92868-4512

or

P. O. Box 22000

Santa Ana, CA 92702-2000

(714) 834-2746

www.ocassessor.gov

Prop 19 helps Californians by opening up more flexible opportunities for movement so fewer individuals feel stuck in their current living situations. If you have any questions about how this measure may affect your real estate goals and plans, email us at Jim@JimSalem.com, or call (714)694-0880 for further assistance.

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Jim Salem

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