Trending financial topics
Prop 19: what it means for your home
Californians narrowly passed Proposition 19 in November, a measure expected to significantly change property tax rules for older homeowners selling their houses and family members inheriting homes and rental properties.
The complex measure has tax winners (long-time homeowners looking to move within California), losers (some families inheriting properties) and still many unknowns. Voters backed the measure by a 2 percent margin.
The California Association of Realtors aggressively backed the proposition, spending $35 million to promote a measure they believe will encourage more home sales. In Santa Clara County, for example, nearly 6 in 10 homes have not changed ownership in the last 10 years — a strong indication that homeowners are unwilling or unable to pull-up roots.
But it's going to take a while before the impact of Prop. 19 is clear. Santa Clara County Assessor Larry Stone noted that Prop 13 — the measure that set property tax rates at 1 percent across the state and limited annual increases — was 44 words long on the ballot yet took three years for lawmakers to decipher.
"We can answer most of the questions," Stone said about Prop 19, "but not all of them."
Here's a look at what the measure might mean for you. An estate attorney or accountant can address more specific issues.
Homeowners over the age of 55, severely disabled residents and people whose properties have been damaged by wildfires or contamination. Family trusts are generally treated the same as individual owners.
The measure also creates new funds dedicated to preventing and fighting wildfires, and for assisting counties with lost property tax revenues.
There are two main parts to the law and two major deadlines. New rules for transfers of inherited property will begin February 16. New rules for taking a favorable assessment on a home purchase start April 1.
The measure does not apply retroactively to properties that have already transferred between family members.
Next year, most older homeowners will be able to move anywhere in the state without seeing significant property tax hikes if they buy a property of equal or lesser value. The benefit can be used no more than three times for all eligible homeowners. Until Prop. 19 passed, a property owner could sell their home and move within their own county or to just 10 other counties and preserve their low tax assessment.
Yes. Under old rules, families had to downsize to preserve their status. "You can now trade up," Stone said. The new, pricier home will come with a higher assessment, but not at market value.
For example, a long-time homeowner selling a $1 million home with a $200,000 tax assessment to move into a $1.5 million condo closer to their grandchildren will see a higher tax bill. But the new assessment will be based on the difference between the condo purchase price and the sale price of their old home ($500,000), plus their original assessment ($200,000) for a new tax base of $700,000.
That's not clear. State and local officials are designing a new program to carry out Prop. 19, and not all of the details on family properties have been worked out.
Inherited homes broadly will have higher assessments. Children moving into the family home after their parents have transferred it can expect higher tax bills, depending on the property's market value compared to its assessed value.
The exemption for inherited vacation and rental properties will be eliminated going forward. Starting next year, those properties will be re-assessed at market value when the ownership changes.
This closes a big legal loophole. For example, in some cases children and grandchildren pay taxes based on 1970s assessments, while renting properties at market prices.
The Legislative Analyst's Office estimates that by ending exemptions on inherited property, the government will collect tens of millions of dollars annually. The total could grow to hundreds of millions of dollars as more properties receive higher assessments.
The measure created the California Fire Response Fund, designed as a dedicated source of money for firefighters. Counties will also be able to tap another new fund to make up for losses from lower assessments.
California's booming economy and housing shortage has been very good for the personal wealth of property owners over the last decade. Real estate agents say older California homeowners are discouraged from downsizing, since a combination of high housing costs and losing Prop 13 protections can make it overly expensive to move most places in the state.
This article is written by Louis Hansen from Mercury News and was legally licensed via the Tribune Content Agency through the Industry Dive publisher network. Please direct all licensing questions to email@example.com.
The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views and opinions of Union Bank, its subsidiaries or affiliates.
Get in touch with The Private Bank
Build a financial partnership to last a lifetime.