Proposition 19 Passed: How Will Property Tax Transfers Be Impacted?

January 7, 2021

California voted on and passed Proposition 19, or the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire and Natural Disasters Act. The law becomes effective February 16, 2021.

Existing State Laws involving Property Tax Reassessment

Upon a sale or transfer of property in California, the property is generally reassessed at market value. Property taxes are based on that new value.

Currently, there are two exclusions that preclude property tax reassessment:

1. Principal residence exclusion: A transfer, sale, or inheritance of a principal residence to your child or grandchild (if the parents are deceased as of the date of transfer) is not subject to property tax reassessment. The child is not required to live in the property and can use it for other purposes such as a rental property.

2. $1 million exclusion limit: Up to $1 million of the assessed value of any residential, rental, or commercial property that is transferred to children are exempted from reassessment.

Upcoming Changes in February 2021

The new legislation will apply to any transfers made on or after February 16, 2021. The parent-child exemption will apply only to primary residences and family farms. Any rental, vacation, or commercial property will not qualify. Unlike the former law, the child must use the home or farm as a primary residence. If the child does not utilize the property as his or her primary residence, the property will be reassessed to its fair market value.

The exemption is limited to the current assessed value of the primary residence plus $1 million. If the market value of the primary residence at the time of transfer exceeds $1 million, the new assessed value of the home will consist of the fair market value of the property less $1 million.

Upcoming Changes in April 2021

There are also new laws relating to seniors, severely disabled homeowners, or those affected by a declared natural disaster. Currently, homeowners who are 55 years of age or older can transfer their current tax base to a new primary residence of equal or lesser value than the existing one. This is a one-time only benefit. The purchase or construction of the replacement home must be completed within two years from the date of the sale of the former residence.

Beginning on April 1, 2021, homeowners who are 55 years or older, severely disabled, or victims of natural disasters can transfer their current tax base to property, regardless if the new property’s market value is higher. The difference in the market values of both properties will be added to the tax base.

Additionally, homeowners can transfer their tax base to a new residence to any county in California. Rather than being a one-time only benefit, the exemption can be used up to three times.

Many questions continue to be left unanswered regarding these new laws. It is assumed that there will be more legislation to provide more definitive answers. For more information, consult with a licensed attorney.

This article is specific to the laws of the State of California and is intended for informational purposes only. The article should not be construed as legal or tax advice or a legal opinion based on any specific facts or circumstances. For specific questions related to this article, please contact an attorney.