HOW DOES PROPOSITION 19 (2020) AFFECT MY FAMILY?
Proposition 19, narrowly approved by voters in 2020, made major changes to property tax law in California. It included both tax breaks and tax increases. How it affects you and your family depends on what type of property you own, where you live, where you want to live in the future, whether you have children, where your children live and where they want to live in the future.
For background, under Proposition 13, property may not be reassessed to market value until there is a change of ownership, as defined in state law. While under the same ownership, the assessed value of property may rise with inflation, but the increase is capped at 2% per year. This provides all property owners with stability and certainty about future property tax expenses. Given that property values can rise much more than 2% per year, the longer you own your property, the greater your savings from Proposition 13.
Can I move to a new home and “keep the Prop. 13” tax bill from my current home?
Under Proposition 19, you may be able to transfer your current home’s trended base-year value (the taxable value based on the purchase price plus the annual inflation adjustments of up to 2%) to a newly purchased home anywhere in the state up to three times. The replacement home may be of any value, but if it has a higher value than the sale price of the previous home, the difference will be assessed at market value, and that amount will be added to the transferred value for a blended assessment, which then becomes your new base-year value.
For example, if your home has a taxable value of $500,000 under Proposition 13, you sell it for $800,000, and you buy a new home for $800,000, the assessed value of your new home would be $500,000 because you can transfer the taxable value from your previous home. However, if you buy a new home for $900,000, the assessed value of your new home would be $600,000 — the $500,000 that you are transferring plus the price difference of $100,000. Your new property tax bill would be 1% of $600,000, plus any bonds, fees and local taxes approved by voters.
This tax break applies to your primary residence only, and it is available to homeowners who are age 55 years or older, wildfire victims or disabled.
Can I leave my home to my children or grandchildren without their having to pay higher property taxes?
Possibly, but this opportunity was sharply curtailed by Proposition 19, which repealed Proposition 58 (1986) and Proposition 193 (1996). Now, if parents transfer property to the next generation, it will be reassessed to market value as of the date of transfer with only limited exceptions. The new annual property tax bill will be 1% of the new market value, plus any bonds, fees and parcel taxes passed by local voters.
Because of Proposition 19, the exclusion from reassessment for parent-child or, in some circumstances, grandparent-grandchild transfers is now available only for a primary residence, and only if an eligible child moves into it within one year, makes it their own primary residence and claims the homeowner’s exemption (requires filing a form with the county assessor’s office). Even then, property taxes may go up because Proposition 19 put a $1 million cap on the amount of value that may be excluded from reassessment. For example, if children inherit a family home with an assessed value of $400,000 and a market value of $1,500,000, the exclusion applies to $400,000 plus $1 million. Any value above that total will be added to the assessment, so in this example, the home’s assessed value would increase from $400,000 to $500,000 if an eligible child moved into it within a year; if not, the assessment would jump to the full cash value of $1,500,000. The same rules apply to transfers between grandparents and grandchildren if the children’s parents are deceased. Some family farm properties may also be eligible for an exclusion from reassessment.
My property is in a trust. Does that prevent reassessment when I die?
No. Assessors “look through” the trust to determine the “present beneficial owners” of the property.
My property is in an LLC (limited liability company). Does that prevent reassessment when I die?
Possibly. It’s complicated. Please consult a qualified attorney and tax specialist.
I still have questions. Where can I get specific answers about my property tax situation?
For more information and to get answers to specific questions about your property, please contact your county assessor’s office, visit www.boe.ca.gov/prop19 or call the Board of Equalization’s property tax department at 1-916-274-3350.
What about the future?
As you know, HJTA has been working hard to repeal the portion of Proposition 19 that affects parent-child transfers. This can be done through the Legislature, but more likely it will take another ballot initiative. Efforts are ongoing to develop the successful strategy to accomplish this. Stay connected by signing up for e-mail alerts at www.hjta.org.