In November 2020, California voters passed Proposition 19. This law changed the way property taxes work in the state. The goal was to help some people, like seniors and those with disabilities, by giving them tax breaks. It also brought new rules for people who inherit homes from their parents or grandparents. Whether you own a home, want to buy one, or are thinking about your family’s future, it’s important to understand how Proposition 19 affects you.
What is Proposition 19?
Proposition 19 made two big changes to how property taxes are calculated when you buy a new home or inherit one in California:
- Moving and Keeping Your Low Tax Rate:
- If you’re 55 or older, have a disability, or lost your home in a disaster, you can now move anywhere in California and keep the low property tax rate from your old home. Before this law, you could only do that if you moved within the same county or to a less expensive home. Now, you have more freedom to move without worrying about your taxes going up.
- New Rules for Inheriting Properties:
- The law also changed how property taxes work when you inherit a home. Before, if you inherited a home, you could keep the same low tax rate your parents or grandparents had, even if you didn’t live there. To keep that low tax rate, you must live in the home as your primary residence. If you don’t, or if the home’s value has gone up a lot (more than $1M), the taxes will increase, too.
The Benefits of Proposition 19
- Increased Flexibility for Seniors and Disabled Homeowners:
- One of Proposition 19’s biggest advantages is the increased flexibility it offers to homeowners who are 55 or older or severely disabled. These groups can now move anywhere in the state and keep their current property tax rate, even if they purchase a more expensive home. This change makes it easier for seniors to move closer to family or relocate to more suitable housing without worrying about a significant increase in property taxes.
- Example: Imagine a couple in their 70s who have lived in their home for decades. They purchased the home for $200,000, and their property tax is based on that value. The home is now worth $800,000, but they want to move to a smaller home closer to their grandchildren. Without Proposition 19, they would face a much higher property tax bill on the new home. With Proposition 19, they can transfer their old tax rate to the new property, saving them thousands of dollars each year.
- Relief for Natural Disaster Victims:
- Californians whose homes were destroyed by wildfires or other natural disasters can also benefit from Proposition 19. These homeowners can relocate and keep their old, lower property tax base, even if they buy a more expensive property. This rule makes it easier for families to get back on their feet after a tough time by keeping their property taxes low so they don’t have to worry about paying more.
- Example: A family loses their home to a wildfire and decides to move to a safer area. Their destroyed home was valued at $500,000, and their property taxes were low because they had owned it for many years. They find a new home worth $960,000. Under Proposition 19, they can transfer their old tax rate to the new home, maintaining financial stability as they start over.
- Increased Revenue for Public Services:
- The changes to the inheritance rules are expected to bring in more tax money for the state. This extra money will be used to support important services in the community, such as improving wildfire prevention efforts, funding schools, and helping local governments with various projects that benefit everyone.
- Example: The state estimates that the new rules could generate up to $1 billion annually in additional property tax revenue. The state could use this new tax money to improve firefighting equipment or build better firebreaks to protect communities from future wildfires.
The Drawbacks and Concerns of Proposition 19
- Higher Taxes on Inherited Homes:
- One big change with Proposition 19 is how it affects homes that kids inherit from their parents. Before, if you inherited your parents’ home, you could keep paying the same low property taxes, even if you didn’t live there. Now, you only get that low tax rate if you live in the house. If you don’t live there, or if the house is worth a lot more now, the property will be reassessed, and the taxes could go way up.
- Example: Let’s say a parent passes away and leaves their home to their children. They bought the house 30 years ago for $150,000, and the adjusted taxes are based on that old price. Today, the house is worth $1 million. If the children don’t live in the house, the taxes will be based on the new value, which could make the tax bill much higher. The kids might have to sell the house if they can’t afford the new taxes.
- Possible Increase in Home Prices
- Proposition 19 makes it easier for older people to move without losing their low property taxes. Because of this, more seniors might want to buy homes, especially in places that are popular for retirement. With more people wanting to buy homes in these areas, prices could go up, making it harder for younger families and first-time buyers to afford a home.
- Example: In a beach town like Santa Barbara, which is popular with retirees, more older homeowners might decide to move there because Proposition 19 lets them keep their low property taxes. As more seniors start buying homes in Santa Barbara, the increased demand could push home prices higher. This could make it harder for younger families or first-time buyers in the area to afford a home, as they would have to compete with the higher prices driven by the influx of retirees.
- Complexity and Confusion:
- The new rules from Proposition 19 can be tricky, especially when it comes to inheriting property. Homeowners and the people who inherit their property need to be careful to avoid surprise tax bills. The rules about living in the home and reassessing its value can be confusing, so it’s important to know how they work for your situation.
- Example: A family inherits a house and thinks they can keep the low property tax rate, but later finds out that the taxes will go up because they don’t plan to live there. This could lead to unexpected money problems and tough choices about whether to keep or sell the house.
Broader Implications of Proposition 19
- Impact on Real Estate Markets:
- By encouraging older homeowners to move, Proposition 19 could lead to more home sales, especially in areas where many seniors live. This might make it easier for some buyers to find a home, but it could also lead to more competition.
- Example: In a neighborhood with a lot of older residents, more homes might come up for sale as people move. This could be good for buyers looking for homes in that area, but it could also mean bidding wars if lots of people want to buy.
- Long-Term Effects on Family Wealth:
- The new rules for inheriting property could change how wealth is passed down in families. Some families might need to rethink their plans to make sure they can keep properties in the family.
- Example: A family with several properties might have planned to pass them on to their children. Now, they might have to sell some of the properties if the taxes are too high, which could reduce the wealth passed on to the next generation.
- Implications for Local Governments and Public Services:
- The extra money from Proposition 19 is expected to improve public services, especially in areas that need help with wildfire prevention. This could make communities safer and better prepared for emergencies.
- Example: Counties that are at high risk for wildfires might use the extra money to improve their fire departments and emergency services, making everyone in the community safer.
Conclusion
Proposition 19 brought big changes to how property taxes work in California. While it offers helpful benefits for some people, it also introduces new challenges, especially for those inheriting property. Whether you’re thinking about moving, planning for the future, or just want to understand the new rules, it’s important to know how Proposition 19 affects you.
If you have any questions or need assistance understanding how Proposition 19 might impact your situation, don’t hesitate to reach out. As a licensed Realtor and Mortgage Loan Officer, I’m here to help you navigate these changes and make informed decisions about your real estate and financial future.
