Prop 19 in California:
In November 2020, California voters passed a new constitutional amendment, Proposition 19. This act has both positive and negative effects on the transfer of property tax in California. Prop 19 benefits those who are victims of natural disasters but it can pose taxing difficulties for those who inherit property as heirs in California.
What Will Be Covered in This Article:
- What is Prop 19?
- Transferring Property From Parent/Grandparent to Child Under Prop 19:
- What If The Value Of My Primary Home Is Greater Than $1 Million?
- Senior, disabled, and Disaster Replacement Homes Under Prop 19:
- What is Factored Base Year Value?
- Questions about Proposition 19
What is Prop 19?
Prop 19 is the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act. Proposition 19 brought about two main changes:
It limits those who inherit family properties from maintaining the low property tax base unless they use the home as their primary residence. This will be explained in further detail below.
Additionally, it allows homeowners over 55 years old, severely disabled, or victims of a wildfire or natural disaster to transfer the assessed value of their primary home to a newly purchased or newly constructed replacement primary residence up to three times.
Transferring Property From Parent/Grandparent to Child Under Prop 19:
Prop 19 affects how property taxes are paid when transferring property from a parent to a child. Prior to Prop 19, when a parent was transferring a property to a child, the tax basis remained the same as long as the home had less than 1 million in base value. Now, a child who receives a home from a parent or grandparent will only qualify for a full exemption if the property was a primary home of the transferor and continues as the primary family home.
If not, the exclusion is limited to the first $1 million of value that would be added upon reassessment of a family home (or family farm).
What is Factored Base Year Value?
The base year value is the market value as of 1975 or as established when the property last changed ownership or was modified due to construction. The Factored base year may only be increased by a maximum of 2% each year. This increased base year value is the factored base year value (FBYV).
What If The Value Of My Primary Home Is Greater Than $1 Million ?
Under Prop 19, you may be granted up to a $1 million exclusion. The value of the home will be reassessed at the current market value, and the tax exemption will then be determined.
The excluded value limit under Prop. 19 is the sum of the factored base year value of the property plus $1 million. The tax relief available is reassessed in proportion to the market value of the property.
If the market value is equal to or less than the limit (factored base year+$1 million), you will get the full exemption. If the market value exceeds this limit, partial relief is available. The amount exceeding the value limit is added to the factored base year value.
If parents owned a property for decades, and their property tax bill was super low, it now gets reevaluated upon transfer. At the date of the parent’s death, the property got reassessed to FMV and the property tax bill can become unaffordable to the heir who doesn’t have the means to pay it, forcing the heir to sell the property. We’re seeing this scenario play out too often.
For Example:
A family home has a factored base year value of $300,000 and a fair market value of $2,500,000.
The tax-excluded value is $300,000 (the factored base year) + $1,000,000= $1,300,000.
The difference between the fair market value and the excluded amount is: $2,500,000 (fair market value)-$1,300,000 (exemption amount)=$1,200,000
Now, add $300,000 (Factored base year) +$1.2 M (amount exceeding the tax-ememption), and the new factored base is $1,500,000.
Senior, disabled, and Disaster Replacement Homes Under Prop 19:
Before Prop 19, the transfer of taxes on a replacement home was limited. A senior ( 55+) severely disabled person, and a victims of natural disaster were only able to transfer the taxable value of their home to a replacement home:
- of equal or lesser value
- within the same county.
- A limitation of one transfer per lifetime, within 2 years of the sale of their original home.
Prop 19 has changed all that and added more flexibility to the process. Now, Seniors, severely disabled persons and victims of natural disaster may transfer taxes to a replacement home with fewer limitations:
- The replacement home can be of any value
- The home may be located anywhere in California
- Seniors and severely disabled persons can transfer their tax base up to 3 times, while keeping the Factored Base Year of the First (original) home sold. Victims of natural disaster can transfer 1 time per event.
The transfer of the property must still be within two years of the sale of an original primary residence. The sale price of this house becomes the full cash value of the original primary residence. Additionally, to qualify for this Prop 19 exclusion, the owner must live in the replacement property as a primary residence and must have a Homeowners’ Exemption filed within three years of the transfer.
Questions about Proposition 19:
The California legislature and the State Board of Equalization have addressed many questions concerning Proposition 19; for example:
- How to evaluate factored base year value of new construction or part of a multi-unit property.
- Dealing with co-owners.
- Dealing with gifted properties.
- Dealing with mobile homes.
Find Answers to All Further Questions Here.
About The Bienstock Group:
The Bienstock Group, led by Sheri Bienstock, is an expert real estate group in Los Angeles, Hancock Park, and Miracle Mile. Sheri is committed to her clients and will invest all her effort to get you the best results possible. Sheri has 235+ five-star reviews on Zillow, and has been ranked #1 listing agent in 90036 since 2009 and in Hancock Park since 2016.
