What is Proposition 19?

There has been a lot of talk about Prop 19. What does it mean for you? Prop 19 makes it easier for homeowners 55 or older to move to another home statewide and keep the taxable value (tax basis) of their original home. Under the old law, you could only move that basis between two counties that had opted in to the law – and you could only do it once. Under Prop 19, you can move the basis anywhere in the state, and do so three times and this tax basis transfer goes into effect on April 1, 2021.

If you’re transferring the taxable value to a replacement “of equal or lesser value,” the taxable value  of your new residence will be the same as that of your original one. If you transfer your basis to a  replacement of greater value, then the taxable value (basis) of your original primary residence is increased by the difference between the sales price of that residence and the purchase price of your  replacement one. That new number becomes the replacement home’s basis. 

As an example, if your present, original residence has a tax value of $100,000 but a cash value of  $500,000, and you buy a replacement primary residence for $1 million, then the tax value (basis) for  the new home will be $600,000 (the original tax value ($100,000) plus the difference in cash value  between the two properties ($1 million minus $500,000). Note that even though there is a step up in basis due to the increased value of your new home, it’s held down by starting with the basis of your  original residence. 

Prop 19 still covers the transfer of a family home between parents and their children, including through inheritance but the home’s tax value can only be transferred if “the property continues as the  family home of the transferee.” In other words, if you inherit your parents’ property, you can only keep  their tax basis if you continue to use that property as your primary residence. If you want to use the  property as an investment, you won’t receive the benefit of its original basis. 

For more specific questions on how this affects you, please contact a California Real estate attorney or tax advisor.