By: Neil Kalin, Esq.
Proposition 19 would make two significant changes to existing rules that allow certain individuals to transfer their property tax base from one residence to another. According to the Secretary of State website, as of November 10, just over 51% of Californians have voted to enact Proposition 19. If that lead holds until December 11, 2020, when results will be certified, Proposition 19 will become law. Here is what it means.
First, currently, pursuant to Proposition 60 which was passed in 1986, homeowners at least 55 years old, as well as the severely disabled, may transfer their property tax base on a current primary residence to a replacement residence if the new home is in the same county as the old home, AND the new home is of equal or lesser value than the old home AND the new home is purchased within two years of the sale of the old home. The transfer of tax base may also take place if the new home is in a different county than the old home but only if the new home’s county has adopted a rule pursuant to Proposition 90, adopted in 1988, that allows such a transfer. Only 10 counties in California have adopted an ordinance allowing the inter-county tax base transfer while 30 counties have rejected it. Proposition 19 allows seniors over 55 years old, the severely disabled, and also those whose homes were destroyed by a wildfire to transfer their property tax base on a primary residence not just within a county but anywhere in the State, whether or not the other county has adopted a qualifying ordinance. Further, unlike current law which only allows a homeowner to transfer their tax base once, Proposition 19 permits the homeowner to transfer the tax base up to three times. In addition, the tax base can be transferred even if the homeowner purchases a replacement property of greater value than the older home but in that case there will be a partial increase in tax base calculated on the difference in value of the two homes. This part of Proposition takes effect on April 1, 2021. It is unclear whether that means both the original residence must be sold and the replacement residence purchased on or after the effective date. It is expected that there will be clarifying legislation enacted to create some more certainty regarding this ambiguity.
Second, currently, both transfers of a principal residence – regardless of value, and transfers of any other property valued at up to $1,000,000, were eligible to keep the property tax base if the transfer was between parent and child or grandparent and grandchild. Under Proposition 19 these types of intra-family transfers are only available for the favorable property tax base treatment IF the property was used by the transferor and continues to be used by the transferee as a family home – or in other circumstances, a family farm. Further, the new assessed value to the transferee may rise IF the market value of the property when transferred is more than $1,000,000 over the assessed value of the property being transferred. The difference over and above that permissible $1,000,000 increase will be part of the new assessment. Another way to look at this rule is as follows: Take the current market value of the property and deduct the property’s existing assessed value, then also deduct $1,000,000. If there is nothing left-over, the property’s existing tax base transfers. If there is something left over, add that amount to the property’s existing tax base to calculate the new tax base. This part of Proposition 19 takes effect February 16, 2021.
Neil Kalin, Esq. is Assistant General Counsel at the California Association of REALTORS®.