Proposition 19 – Property Tax Reassessment Exemption
UPDATE: This article now includes SB 539 information. SB 539, signed into law on September 29, 2021, helps to clarify the implementation of Proposition 19.
Proposition 19 changes tax basis portability for certain California homeowners. These changes were made effective April 1, 2021.
Certain homeowners may transfer the taxable value of their primary residence to a replacement primary residence. This can happen anywhere in California (no County restrictions), within two years of the sale of the original property. This benefit can be used up to three times, except there is no limitation for those whose houses were destroyed by fire.
There are also new restrictions on tax basis portability for intergenerational family transfers.
This article covers:
- What is Tax Basis Portability?
- Who is eligible for Tax Basis Portability?
- What if there is a co-owner on the property who is not eligible?
- Changes from the earlier rules – Propositions 60 and 90 and 110
- Where do I apply?
- How do we calculate our tax basis for future purchases beyond the first transfer?
- New restrictions on tax basis portability for intergenerational family transfers
- “What Constitutes a Transfer of Ownership?” – Q&A by the State Board of Equalization
- Special delay for Los Angeles County residents – Senate Bill 989
What is Tax Basis Portability?
Tax basis portability is a way to reduce the assessed value of your home. As a result, you enjoy a lower property tax liability.
Normally, property tax calculation is based on the property’s assessed value. The assessed value usually resets to the purchase price, whenever a property is sold. While you own the home, the assessed value goes up by only 2% maximum each year. (Read more about property tax calculation here.)
With tax basis portability, you can actually transfer the old assessed value of your home, to your next home. For example, you own a home with an assessed value of only $400,000. You sell it for $600,000, and buy a home for $550,000. Instead of a new reassessed value of $550,000, you can apply to have the value reset to the previous assessed value of $400,000. This lower value could save you approximately $1800 per year in property taxes.
Who Is Eligible?
Tax basis portability is available to homeowners:
- 55+ years of age (as of the date of the sale), or
- severely disabled, or
- whose home has been substantially damaged by wildfire or natural disaster.
Also, the replacement property can be purchased prior to the sale of the current home.
What if there is a non-eligible co-owner?
The Board of Equalization released a clarification for this question on May 11, 2021, which can be found here. There is no requirement that the homeowner who is over 55, or severely and permanently disabled, or a victim of a wildfire, be the sole owner of either the original primary residence or the replacement primary residence.
Changes from Propositions 60 and 90 and 110
Proposition 19 grants more freedom over the older Propositions 60, 90, and 110. There are no more county or sales price restrictions, and people can use this benefit more than once in a lifetime.
Proposition 19 – No More County Restrictions
These older rules limited the location of the properties. Proposition 60 restricted the tax basis portability within one county. Proposition 90 expanded that to a certain list of counties, so you could sell in one county and buy in another, but only if they were on that list.
Now, with Proposition 19, instead of limiting the counties of transfer, you can use this benefit anywhere in California.
Proposition 19 – No More Sales Price Restrictions
Under Propositions 60 and 90, only transfers of “equal or lesser value” were eligible for tax basis portability.
Proposition 19 now allows the transfer of the tax basis regardless of value. However, there are certain adjustments to the tax basis if the purchase price of the replacement property is higher than the sales price of the previous home.
Equal or Lesser Value
The tax basis can transfer if the replacement residence is of equal or lesser value. The rules even allow for an inflation index of 105% if purchased within one year, and 110% if purchased within the second year of the original property’s sale.
From a Lower Value to a Higher Value
Under Propositions 60 and 90, if the replacement residence had a higher market value, you weren’t eligible for the benefit. With Proposition 19, you are still eligible. Here’s how you calculate your benefit:
For example, you sell your home (which has a current assessed value of $300,000) for $500,000, and you purchase a new home for $600,000. This increase of $100,000 increases the assessed value of the first home ($300,000 + $100,000 = $400,000), which is the new assessed value. So, instead of paying property taxes based on $600,000, you pay based on only $400,000.
Proposition 19 – Benefits Extend Beyond One-Time-Only
Instead of once per lifetime, Proposition 19 allows the tax basis transfer up to three times. Exception: there is no limitation for those who lost their home in a fire. If you have already used Proposition 60 or 90 to avoid reassessment, this does not count toward the three times you are allowed under Proposition 19. You are allowed the tax basis transfer up to three times under Proposition 19, regardless of whether or not you have transferred your tax basis in the past.
Basis Calculation After the First Transfer
Check with the State Board of Equalization to clarify how the tax basis is treated with multiple transfers. When I called their office, they told me that the tax basis moves with you, from property to property.
Where Do I Apply?
Check with your County Assessor office for the application to transfer your sold home’s assessed value to your next home’s property tax bill. If your next home is in San Diego County, then you can apply here.
Also: Intergenerational Family Transfers
Please remember: I’m a real estate broker, NOT an estate planner… please contact your estate planner or attorney to find out how Proposition 19 will affect you.
Proposition 19 also changes the rules on exemptions from reassessment for intergenerational transfers.
Before Proposition 19, homeowners could transfer a principal residence to their children and grandchildren, without a property tax reassessment. According to Proposition 19, the property must continue to be a principal residence after the transfer, in order to qualify for the exemption.
Finally: if the market value of the property is over $1 million higher than the current assessed value, the property is subject to a higher taxable value. The new taxable value is the current assessed value minus $1 million.
These new rules for intergenerational family transfers apply to any purchase or transfer beginning February 16, 2021.
What Constitutes a “Change in Ownership”?
This often confusing subject now has a Q&A! The State Board of Equalization has a website to help explain whether or not a scenario constitutes a change in ownership.
Go to the BoE Q&A to get your questions answered.
Los Angeles County Residents – Senate Bill 989
If you are applying for a tax basis transfer in Los Angeles, there might be a delay. Because of this, you may apply for a deferment of property tax. You must apply within one year of receiving your tax bill, and before January 1, 2024.
All property tax will be differed without penalties or interest, until the Assessor issues the new bill.
Read more about Senate Bill 989 here.
For More Information
California voters passed Proposition 19 in November 2020. You can refer to Voter Information Guide for more details about the constitutional amendment.
Finally, contact your attorney, estate planner, or tax professional to determine how Proposition 19 affects you.
