Prop 19 – Property Tax Changes

On November 3, 2020, California Residents passed Proposition 19 (2020) The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act (“Prop 19”).

Prop 19 drastically changes California’s property tax laws. Prop 19 makes amendments to the state’s Constitution that are important for property owners in California:

  1. Prop 19 eliminates parent-child and grandparent-grandchild exclusion from property tax reassessment upon transfer, whether by sale, gift or inheritance, of the parent’s primary residence unless the child or grandchild uses the transferred property as their primary residence within one year of the property’s transfer. The primary residence exclusion is limited to the first $1 million of fair market value.
  2. The exclusion from reassessment for any non-primary residence real properties (e.g. investment properties, vacation homes, etc.) is eliminated.
  3. As of April 1, 2021, Prop 19 allows homeowners who are over 55, disabled, or victims of natural disasters to transfer their property tax base with them when they sell their home and purchase a new one anywhere in California.

Tax Increases on Parent-Children and Grandparent-Grandchildren Real Property Transfers

The changes that will take effect in February of 2021 will substantially restrict property tax benefits for real property transferred between parents and children. Under the current rules:

  1. Parents can transfer a primary residence of unlimited value to their children without triggering any reassessment.
  2. Furthermore, the transfer of real property other than the primary residence between parents and children (and certain transfers between grandparents and grandchildren) qualify for the exclusion from reassessment so long as the aggregate base year value (a.k.a. assessed value) of the properties transferred did not exceed $1 million. Together, two parents could transfer to their children up to $2 million of aggregate base year value properties without triggering property tax reassessment.

The deadline to transfer real properties without triggering the new reassessment rules under Prop 19 is effectively February 11, 2021.

Property Transfer Benefits for Seniors, Disabled, or Wildfire Victims

This provides property tax relief to this group of people, which is limited to the value of the original primary residence regardless of the price paid for the replacement property.

If you believe you will be impacted by these changes, please contact us at 415-781-4000 to determine your next steps.