California’s Proposition 19 passed by a slim 2% margin in the November election (51%-49%), and it will officially take effect on February 16th. The measure will amend current legislation establishing rules for how property owners can carry and pass on their property tax basis. If you own property in California, it is important you understand these changes, and how they will affect you and your family. Here’s a quick rundown of what will be changing come February 16th:
LIFE BEFORE PROP 19 (Current Laws)
• Property tax increases limited to 2% annually unless reassessed due to sale or other transfer. As a result, most homes in California are taxed at a basis much lower than their actual current market value.
• Property owners have the ability to transfer property to their children and grandchildren while maintaining the low property tax basis. This applies to their personal residence (regardless of value or who will live there) plus $1 million in additional property. The new property owner would then be subject to the 2% annual tax increase.
• Qualified homeowners (aged 55 or over, physically disabled, or a natural disaster victim) have the ability to move to a participating in-state county ONCE, and carry the assessed value of their property with them, provided they are moving into a home of lesser value.
LIFE AFTER PROP 19 (Beginning 2/16)
Once Prop 19 takes effect on February 16th, it will make some key changes to the rules described above:
• Starting Feb. 16th, all real estate will be reassessed at death, with the exception of a primary residence worth less than $1 million that a child actually moves into (if worth over $1M the balance is reas- sessed). So now instead of children/grandchildren inheriting property at the lower tax basis (subject to 2% annual increase), the tax will be reassessed based on the home’s current market value.
• Qualifying homeowners (over 55 years of age, physically disabled or natural disaster victims) will now be able to sell and move into a home any- where within the state up to THREE times while still carrying their old property tax assessment.
• This assessment can now be carried to properties of greater value (with an upward adjustment).
It’s worth noting that all the way up until February 16th, you can still transfer property to your children or grandchildren without facing reassessment to current market value. Of course, there are other factors to consider when transferring property to a family member (i.e. gift tax). If you have any questions about how Prop 19 will affect you, I’ll be hosting a webinar on February 4th – save the date!
