Real Estate Round-Up: Prop. 19 – Now for some good news
Last updated 8/20/2020 at 4:07pm
The California Association of Realtors has been diligently working on finding a way to provide property tax relief to homeowners over 55, the severely disabled and victims of wildfires and natural disasters. The path to Proposition 19 began three years ago, when CAR gathered enough signatures to get CAR sponsored Proposition 5 on the November 2018 ballot. The Legislative Analyst’s Office gave Proposition 5 a very unfavorable title and summary. The title and summary is the language that provides the details of not only how the proposition works, but who it affects and a financial analysis of the cost or revenue. The LAO used a static analysis which only looked at the revenue lost, not the revenue gained. The fiscal impact was reported to be property tax losses for cities, counties and special districts of around $150 million, growing in time to over $1 billion. With those reported projected losses, cities, counties, firefighters and teachers were all opposed to Proposition 5. It failed 60% to 40%.
2020 is a new year. Proposition 19 provides much of the same property tax relief, to the same groups of individuals as the original proposition from 2018, but with a few tweaks. Proposition 19 is, not only not opposed by the firefighters’ union, it is now co-sponsored with the California Professional Firefighters. Proposition 19 permits homeowners over the age of 55, severely disabled, or victims of wildfires and natural disasters to transfer their property tax base to a replacement residence anywhere in the state regardless of the price of the home. It will 100% exempt family-owned farms, including the land and the home. These farms will be able to transfer in entirety to the heirs with the lower tax base from the deceased family member. This key component of Proposition 19, missing from 2018’s Proposition 5, was added to save family farmers from losing their farm due to a reassessment at death of the farmer. Lastly, the initiative will also protect family transfers for children and grandchildren who live in the home while generating hundreds of millions of dollars for fire protection, local government and school districts.
CAR lead the effort that gathered nearly 1.5 million signatures to qualify it for the November 2020 ballot. In June, the California State Legislature passed a bipartisan measure that built on CAR’s initiative, by incorporating dedicated funding for fire protection and emergency response to safeguard millions of lives in communities across the state. Proposition 19 has received support from business groups, labor, agriculture, community groups, local elected and school officials, Democrats and Republicans.
Proposition 19 provides a path for homeowners to transfer their base to their new principal residence up to three times. That’s a huge advantage for homeowners 55 and older. Currently, if you used your transfer when you turn 55, and life changes for you when you’re 70 or 80, you cannot use it again. I don’t know about you, but life does change. Homeowners should be able to retain their principal residence tax basis without being penalized because situations in their life changed, and subsequently, their housing needs changed.
Proposition 19 eliminates the ability for a homeowner to transfer their property to their child or grandchild and use it for a second home or as investment property, aka, rental property. A generational transfer can only be applied if the child or grandchild chooses to live in the transferred property. The revised restriction sounds reasonable and was a key provision that provides revenue that was lacking in Proposition 5.
Another key provision of Proposition 19 is that it can be used anywhere within the entire state of California and can be for any priced home. Currently, homeowners can purchase a replacement property of equal or lesser value than their current home. If you live along the coast or in any of the high-priced markets of the state, that is a reasonable expectation. But if you live in Fallbrook, where our prices are some of the lowest in San Diego County, try relocating to the coast or even Orange County and purchase for equal or less. It is not possible, even when you’re downsizing.
I have written many articles opposing higher taxes, because higher taxes on an individual or entity will always have a trickle-down effect to everyone else. This tax break will not have that same trickle effect. Think of it this way. If I sell my home in Fallbrook for $800,000 that has a property tax basis of $500,000, the new tax basis on my current home for the buyer of my home will jump up to $800,000. San Diego County will receive a benefit of an additional $300,000 property tax basis. The home I purchase in the Coachella Valley for $800,000 may receive a reduction in its property tax basis, because it will now be at my $500,000 basis, but that homeowner will be purchasing somewhere else, and that tax basis may or may not transfer depending on if that seller qualifies.
If homeowners over 55 can downsize into a more reasonably sized home or parcel, their larger home and parcel becomes available to a larger family, a multi-generational family situation or someone who wants to have more land. One of the negative comments I’ve read was that this new freedom to transfer the tax basis multiple times, will pit homeowners over 55 against first time homeowners. My experience is that those two demographics are not competing for the same kind of home. They may both be looking for smaller homes and starter homes, but they generally are not looking in the same neighborhood or community.
I’m always proud to be a Realtor, but in moments like these, I am especially proud that CAR did not give up fighting for the reform of property tax transfers. It shows me that when people are searching for a common good, a reasonable solution can be found, if the parties are willing to compromise and keep their eye on the big picture, not just their own personal agenda. Proposition 19 found a way to offer solutions that will not be financially detrimental to California and still benefit many home and farm owners. Do I hear a cheer for this good news?
Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N. Main Ave., in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.