On Election Day 2020, California voters narrowly approved Proposition 19 (“Prop 19”), a constitutional amendment designed to change the way that tax assessments can be transferred. Although the amendment covered many different areas, those most likely to benefit from Prop 19 (or notice its changes) are 55-and-older homeowners, the severely disabled, or victims of a natural disaster who are trying to sell their homes or those buyers whose property tax may be reassessed.1, 3 Ultimately, Prop 19 didn’t win by a rousing majority, garnering just 51 percent of the total vote.2 What should California residents know about the changes coming as a result of the passage of Prop 19?
What Does Prop 19 Provide?
This constitutional amendment makes a couple of major changes to California’s property tax assessments:
- It allows eligible homeowners to retain their original tax assessments1 anywhere within the state of California, including transferring tax assessments to a more expensive home with an upward adjustment; and
- It increases the number of times that those who are severely disabled or over 55 years old can transfer a tax assessment (presently three times).3,
Prior to the enactment of Prop 19, homeowners could transfer their tax assessments only to a different home that was valued the same as (or less than) the home being sold. This provided homeowners with the ability to move within the state without losing their Prop 13 tax advantages. Now, under Prop 19, homeowners can upgrade their homes or move to a more expensive area while still realizing the benefits of California’s property tax laws and exemptions.6
Prop 19 takes effect on February 16, 2021 (for transfers of inherited property) and on April 1, 2021 (for assessments on new home purchases).4
What Changes Can Homeowners Expect?
One open question that remains is how this ballot measure should affect inherited properties. Homeowners can generally transfer residences to their heirs without resetting the property tax assessment to market value, which can be a boon in a state boasting many of the most expensive zip codes in the country.5
However, Prop 19 eliminated the ability of parents to transfer properties to children (and grandparents to grandchildren) if the recipient doesn’t intend to use the inherited property as their primary residence. And, if the inherited property is used as the primary residence but is later sold for more than $1 million over the property’s taxable value, after the year 2023, the assessed value is adjusted upward. As a result, unless a piece of inherited property is consistently used as the recipient’s primary residence, the recipient can no longer enjoy the favorable tax treatment they would have received had this transfer been made prior to the 2020 vote.4
Important Disclosures:
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
1 https://calmatters.org/election-2020-guide/proposition-19-property-tax-break/
2 https://www.capradio.org/articles/2020/11/12/what-we-know-about-proposition-results/
3 https://www.pbssocal.org/kcet-originals/ballot-brief/prop-19-tax-assessment-transfers/
5 https://www.propertyshark.com/Real-Estate-Reports/most-expensive-zip-codes-in-the-us
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