Real Estate Round-up: P is for Prop 19

Prop 19 went into effect on April 1, 2021. This proposition just narrowly passed with a 51% to 49% margin. It’s hard for me to understand why anyone would oppose a proposition that will benefit so many homeowners in California. But

thankfully, it doesn’t matter that it passed by the slimmest of margins. It became law and homeowners over 55, those who lost their homes due to a natural disaster, and homeowners with disabilities across the state are taking advantage of it.

There were two substantial differences between this proposition and the previous Prop 60/90. The first is that the tax transfer can be used anywhere, in any city or county in California. Previously, only 9 counties participated. The other particularly important change is that the value of the replacement property can be less, equal, or greater in value than the property being sold. These two components dramatically altered the ability for the aforementioned groups of homeowners to take advantage of the property tax portability.

Did you know that prior to the passage of Prop 19, 52% of eligible homeowners (those 55+) had not moved since 1999.

That’s 2.2 million homeowners who had not moved because they were tied to their existing home simply because they couldn’t afford the increase in property tax if they purchased a replacement home. Those figures increase to 77% of homeowners (those 55+) not moving since 2009, which is 3.2 million homeowners; 57% of owner-occupied homes in California were owned by people age 55+ in 2019, which means they all qualified for Prop 19 tax portability. These are astounding numbers. Prop 19 to the rescue.

Previously, the restrictive tax portability kept 55+ homeowners in their homes. Picture this: You purchase a home in your mid 30’s to raise your children. After 20 wonderful years, your kids are grown, moving to start their new lives and careers. Your home feels a bit empty, it’s more than you need now that the kids are gone. There’s still the same maintenance even though you’re only using a portion of your home. You’d rather spend your time off visiting your kids than taking care of your home, but you’re stuck.

Housing prices have risen so much in the previous 20 years that even moving into a smaller home would find you paying more in property taxes for your new home, then your existing home. Your idea of simplifying your life and living a more

economical lifestyle won’t happen if you move, so you stay put. That is why so many 55+ homeowners haven’t moved.

Prop 19 has opened the doors to make the changes people need at various times in their lives. The good news is that it can be used as many as three times in your life. Imagine moving once when you turn 55, then when you reach your 70’s you want to change your lifestyle again. Maybe it’s health reasons, or maybe you just want to get closer to family, or maybe you’ve decided you want to move to a warmer or cooler part of California or move to a more rural area and get out of the city. Prop 19 can be used again, and again, with no penalty. No one should be tied to their home just because of their property tax base.

Another real enhancement to Prop 19 is that the replacement property can be any value. It can be equal, less, or greater in value than the property you are selling. If the replacement property costs less or the same as the property you are selling, then your current property tax basis moves with you. If, however, that perfect home for your current lifestyle costs more, then you will pay a blended property tax basis.

Imagine you sell your beautiful spacious home in Fallbrook that you’ve owned for the past 20 years for $800,000 and you want to move into a condo at the beach. The property tax base of your current home is probably incredibly low, considering 20 years ago you only paid $250,000. With property taxes only adjusting 2% each year, your home’s tax basis is much lower than the current value of your home of

$800,000.

Previously you couldn’t purchase a beach condo, or anything else if the purchase price was greater than the selling price of $800,000. In the Prop 19 scenario, you bring the tax basis of your $800,000 home with you on the first $800,000 of the replacement property and pay additional tax only on the additional $200,000 in value.

People call us weekly to find out about this program. It’s easy to do. There are a few things to remember to accomplish a Prop 19 property tax transfer. It only applies to your primary residence. Homeowners will need to file paperwork to

apply for Prop 19 property tax exemption after completing the sale and purchase of the respective properties. Each county’s tax assessor has the forms you need to do the transfer.

A homeowner has up to two years to purchase their replacement property or to conversely sell their current property. Suppose you find that perfect next home. If you can qualify to purchase it, you can purchase it first and then sell your current home. Or the more customary way is to sell your current home and then find your new home. The property tax portability works in both scenarios.

Even though the effective date of Prop 19 was April 1, 2021, if you purchased or sold one half of the transfer, prior to that date, the base year value of that primary residence can still be transferred to the replacement primary residence. Always check with a qualified estate attorney if you have questions about how Prop 19 will affect your specific tax situation.

Next week, check in with me to see what Q can mean to you.

Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.