Proposition 19 is Here. How Does it Affect You?

Currently, if a homeowner sells a primary residence and purchases a replacement residence not within 10 cooperating counties under proposition 13, the tax assessment on the new residence is based on its price at the time of the new purchase. 

With the new law, this is not altered for qualified home buyers, potentially allowing them to preserve the lower tax rate they currently have in place with the home they are selling. 

Let me share an example … imagine Kyle and Samantha purchase their San Jose home in 1976 and paid $100,000 for it at the time. With property tax and assessment increases each year, Kyle & Samantha’s tax basis is now $190,000 and their annual property tax bill is $2,000. Their home has appreciated over time and is now worth over two million dollars. 

If Kyle & Samantha decide to sell their home and purchase a replacement property before this change, they would lose their tax basis unless they purchased within those few specific counties previously mentioned. 

Now what happens if they want to move to Southern California or even Sacramento and be close to their grandkids? If they purchase a home around the same value, their new property taxes would be over $20,000. A significant change in its annual budget. 

Proposition 19 allows them to keep their current tax basis without being penalized with a property tax increase as long as they purchase a home below the sales price of their current home. 

Also, If the market value of the new property that the owner purchases are GREATER than the market value of the old property, then the difference would be added to the taxable assessed value of the old property. 

The second aspect of this proposition is how this version finally passed. This flip side affects properties in parent to child transfers. Currently, parents can leave up to a million dollars in investment properties at the tax basis they established without triggering a significant tax hike upon the parent’s death. 

Under proposition 19, only a parent’s primary residence is qualified to keep the tax basis and ONLY if the child keeps the property as their primary residence. This means that the family lake house or rental property will trigger a new tax basis upon the death of the parents. 

This exemption for older homeowners and others will cut into property tax revenue but that will be more than offset by gains from ending breaks on inherited property, yielding a net gain that the state estimates could reach hundreds of millions of dollars a year each for schools and local governments over time. Most of the new money would go to fire protection.