Prop 19: What it means for your home

Californians narrowly passed Proposition 19 this month, a
measure expected to significantly change property tax rules for
older homeowners selling their houses and family members inheriting
homes and rental properties.

The complex measure has tax winners (long-time homeowners
looking to move within California), losers (some families
inheriting properties) and still many unknowns. Voters backed the
measure by a 2 percent margin.

The California Association of Realtors aggressively backed the
proposition, spending $35 million to promote a measure they believe
will encourage more home sales. In Santa Clara County, for example,
nearly 6 in 10 homes have not changed ownership in the last 10
years — a strong indication that homeowners are unwilling or
unable to pull-up roots.

But it’s going to take a while before the impact of Prop. 19
is clear. Santa Clara County Assessor Larry Stone noted that Prop
13 — the measure that set property tax rates at 1 percent across
the state and limited annual increases — was 44 words long on the
ballot yet took three years for lawmakers to decipher.

“We can answer most of the questions,” Stone said about Prop
19, “but not all of them.”

Here’s a look at what the measure might mean for you. An
estate attorney or accountant can address more specific issues.

Who will benefit from Prop. 19?

Homeowners over the age of 55, severely disabled residents and
people whose properties have been damaged by wildfires or
contamination. Family trusts are generally treated the same as
individual owners.

The measure also creates new funds dedicated to preventing and
fighting wildfires, and for assisting counties with lost property
tax revenues.

When does it take effect?

There are two main parts to the law and two major deadlines. New
rules for transfers of inherited property will begin February 16.
New rules for taking a favorable assessment on a home purchase
start April 1.

The measure does not apply retroactively to properties that have
already transferred between family members.

What does Prop. 19 mean for homeowners over 55 years old
with a single property looking to downsize?

Next year, most older homeowners will be able to move anywhere
in the state without seeing significant property tax hikes if they
buy a property of equal or lesser value. The benefit can be used no
more than three times for all eligible homeowners. Until Prop. 19
passed, a property owner could sell their home and move within
their own county or to just 10 other counties and preserve their
low tax assessment.

Can an older homeowner buy a more expensive property and
keep an advantageous assessment?

Yes. Under old rules, families had to downsize to preserve their
status. “You can now trade up,” Stone said. The new, pricier
home will come with a higher assessment, but not at market
value.

For example, a long-time homeowner selling a $1 million home
with a $200,000 tax assessment to move into a $1.5 million condo
closer to their grandchildren will see a higher tax bill. But the
new assessment will be based on the difference between the condo
purchase price and the sale price of their old home ($500,000),
plus their original assessment ($200,000) for a new tax base of
$700,000.

What happens to taxes on inherited
property?

That’s not clear. State and local officials are designing a
new program to carry out Prop. 19, and not all of the details on
family properties have been worked out.

Inherited homes broadly will have higher assessments. Children
moving into the family home after their parents have transferred it
can expect higher tax bills, depending on the property’s market
value�compared to its assessed value.

The exemption for inherited vacation and rental properties will
be eliminated going forward. Starting next year, those properties
will be re-assessed at market value when the ownership changes.

This closes a big legal loophole. For example, in some cases
children and grandchildren pay taxes based on 1970s assessments,
while renting properties  at market prices. Related Articles

Will Prop. 19 bring new tax money?

The Legislative Analyst’s Office estimates that by ending
exemptions on inherited property, the government will collect tens
of millions of dollars annually. The total could grow to hundreds
of millions of dollars as more properties receive higher
assessments.

The measure created the California Fire Response Fund, designed
as a dedicated source of money for firefighters. Counties will also
be able to tap another new fund to make up for losses from lower
assessments.

How many homes might be eligible for favorable tax
rates?

California’s booming economy and housing shortage has been
very good for the personal wealth of property owners over the last
decade. Real estate agents say older California homeowners are
discouraged from downsizing, since a combination of high housing
costs and losing Prop 13 protections can make it overly expensive
to move most places in the state.

It’s unknown how many homeowners will take advantage of the
program.

Source: FS – All – Real Estate News 1
Prop 19: What it means for your home