California Proposition 19 is a significant piece of legislation that impacts real property transfers and has tax implications within the state. Originally passed by California voters in November 2020, the new law took effect February 16, 2021. This proposition introduced changes to the existing laws regarding the transfer of real property and the associated tax consequences. Even though the law has been around for a while, many are still confused by its intent.
One of the key provisions of Proposition 19 is the modification to the factored base year value rules for certain property transfers. Under this new law, eligible homeowners who are 55 years or older, severely disabled, or victims of natural disasters can transfer their current property's assessed value to a replacement property anywhere in California. Previously, this transfer was limited to specific counties. This means that they can potentially move to a new home without experiencing a significant increase in their property taxes. Note the term significant. In some cases, your property tax may increase, but you still save money with Proposition 19. Let’s look at an example or two.
Sell old, existing home and buy new home for the same amount:
Your house sells for $1M.
New house purchased for $1M
Difference: $0
Factored base year value of old house: $425,000
New base year value of replacement house: $425,000
Annual property tax on $1M at 1.2% = $12,000 (without Proposition 19)
Annual property tax on $425,000 at 1.2% = $5,100 (with Proposition 19)
You save: $12,000 - $5,100 = $6,900 per year on your taxes on the new, replacement home.
Sell old, existing home and buy new home for a higher amount:
Your house sells for $1M.
New house purchased for $1.7M
Difference: $700,000
Factored base year value of original house: $425,000
New base year value of replacement house: $425,000 + $700,000 = $1,125,000
Annual property tax on $1,700,000 at 1.2% = $20,400 (without Proposition 19)
Annual property tax on $1,125,000 at 1.2% = $13,500 (with Proposition 19)
You save: $20,400 - $13,500 = $6,900 per year on taxes on the replacement home.
Additionally, Proposition 19 also allows eligible homeowners to transfer their current assessed value to their children or grandchildren when inheriting a primary residence. However, this provision only applies if the inheriting individual uses the inherited property as their primary residence and within specified timeframes. It does not apply to vacation homes or rental properties.
It is important to note that while these changes provide certain benefits for homeowners looking to transfer their properties or pass them down to family members, there are also potential implications on tax revenue for local governments. The increased flexibility in transferring senior property tax bases may result in reduced revenue for local communities, which could impact funding for essential services such as schools and public safety.
In summary, California Proposition 19 addresses real estate transfer issues and taxation concerns by offering greater flexibility and benefits for qualified homeowners. One of the main focuses of Proposition 19 is to expand property tax benefits for homeowners who are 55 years or older, severely disabled, or victims of natural disasters. Proposition 19 allows them greater flexibility in transferring their current property tax base when purchasing a new home anywhere within the state. By doing so, it aims to provide these individuals and families with increased housing options without necessarily being burdened by higher property taxes. Further, under this proposition, eligible homeowners are able to retain their parents' or grandparents' assessed value when inheriting a primary residence. This provision aims to provide relief for families who wish to keep their inherited properties while also ensuring fair taxation practices.
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