Now that homeowners are seeing the effects of recent changes from California Prop 19, it is a good time to review these changes that went into effect on February 16, 2021 so that you can plan around the new laws.

Prop 19 passed as a state constitutional amendment by a vote of 51% to 49% in 2020 (per Ballotpedia). This new law once again reshapes the Prop 13 property tax structure as adopted with an overwhelming majority in 1978 but has often been amended and changed over the years.

This particular change is a trade off with two parts that impact two different groups of homeowners quite differently. The first part expands benefits for homeowners who are over 55 (or severely disabled, or a victim of wildfire or a natural disaster) by allowing them to transfer their lower existing primary residence assessed tax base to their new replacement residence. However, this benefit was funded by the second part which vastly limits the ability to transfer the assessed tax base to heirs upon the homeowner’s death.

Part A – Expanded Benefits

Prop 19 expanded the ability to transfer your current assessed tax base to your new home purchase as originally allowed under Prop 60 and Prop 90. Here’s how it was expanded:

  • The replacement home can now be located anywhere in the state of California rather than only within your county or a county offering reciprocity.
  • Such transfers can be utilized 3 times rather than just once.
  • The replacement home can now be more expensive than the value of the current home. However, some adjustments will apply.

Part B – Vastly Limited Benefits

In order to fund the expanded benefits summarized above, the benefits previously enjoyed on property transfers of inherited property to children or grandchildren under Prop 58 and Prop 193 have been vastly limited. Under the prior rules, transfers at death to children and grandchildren did not trigger reassessment; the heir took the deceased’s assessed tax base which was often quite low since real estate generally appreciates over time. Prop 19 now limits the reassessment exemption to the deceased’s assessed value plus $1,000,000 (adjusted for inflation each year). Further, in order for the heir to earn this treatment, the home must have been the primary residence of the deceased AND become the primary residence of the heir within one year.

For example, if the deceased’s assessed value of the home was $200,000 upon their death, when the home’s market value was $1.7m, the new assessed value is:

  • Assessed value of $200,000 (related to the current assessed value plus a maximum of $1 million of the current market value), plus
  • $500,000 of the remaining market value ($1.7m less the exempt $1.2m)
  • New assessed value is $700,000 (compared to $200,000 under the old rules)

As an important note, LA County runs months behind on sending out tax bills related to reassessed properties that have been transferred so, it could be 6 to 10 months, or more, before the reassessment is issued. As such, reassessment often results in surprise supplemental property tax bills. Make sure to communicate with your legal, tax, and estate professionals about this so that you are not surprised!

As always, Team Plunkett is here to help with additional information.