What Is Prop 19?
Proposition 19, The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act, was passed was approved by California voters on November 3, 2020. This important proposition allows individuals over 55 or those who are severely and permanently disabled to transfer the base year value plus inflation adjustments (taxable value) of their eligible property to a replacement property.
Previously, the transfer of a property's tax assessment was only allowed when transferred to a property of equal or lesser value and one that was either in the same county or in another county that allowed transfers from another county. With the passing of Prop 19, those over 55 years old and those who are severely disabled gained the ability to transfer the taxable value to any replacement property anywhere in the state, regardless of value.
Value transfers must be completed within two years of the sale of the original residence, and the proposition only applies to properties that serve as the person's primary residence (other types of property, such as vacation homes or investment properties, are not eligible). Eligible individuals are limited to three transfers total (previously, they were limited to one transfer).
This proposition also requires that inherited properties that are not being used as the inheritor's primary residence be reassessed at market value and taxed accordingly. Therefore, if a home has significantly increased value, the inheritors will face a substantially higher tax bill. Any additional money that the State earns or saves due to Prop 19 will be put towards wildfire agencies and counties.
Scheduled to go into effect on April 1, 2021, proposition 19 passed at 51.11% and with 8,545,818 votes. This proposition has had significant impacts on millions of people in California. Keep reading to learn more.
How Does Prop 19 Affect Seniors?
Prop 19 provides a major benefit to California seniors and those who are severely disabled. It limits their tax liability on their property, keeping it at a manageable rate, despite inflation and the explosion in California property values in recent years. Further, this proposition has the potential to ensure seniors and the permanently disabled have the financial security they need.
So, Is Prop 19 Working?
Generally speaking, yes, Proposition 19 is working for some people. In particular, seniors and the permanently disabled have seen great benefits. Prop 19 provides new opportunities for many people to have a stable living situation and, in some cases, has even enabled them to improve their situation. With the real estate market skyrocketing in California, many people have been able to sell their homes and purchase new, more valuable homes better suited to their needs without dramatically increasing their tax burden. This has been a godsend for many people, allowing them to improve their living conditions or move closer to family members.
However, not everyone has found this proposition beneficial.
Is Proposition 19 a "Death Tax"?
As noted above, Proposition 19 passed with very narrow margins (by 2.22%). Many people opposed the proposition, and consequently, not everyone has been happy with its rollout. In large part, the concern about Prop 19 comes from the clause that has been termed a "death tax." Though this moniker is somewhat dramatic, this proposition does have the potential to upend many people's plans for how their property will be managed after they pass away.
Because Proposition 19 requires a property's taxable value to be reassessed at the market rate when its original owner passes away and their heirs inherit it, many people fear high tax bills that potentially force them to sell the property. When the property is a rental property, this can have negative implications for the tenants as well. Frequently, when rental properties are sold, the new owners reassess rents, effectively pricing out the current tenants and forcing them to move.
That being said, if the inheritor uses the property as their primary residence, they are allowed to exclude up to $1 million of the reassessed value. However, suppose multiple people inherit the property. In that case, they may not all want to live in the property as a primary residence, but they also may not be able to afford the new property tax. In this case, a home that has potentially been in the family for generations or which the previous owner wished to be kept in the family must be sold.
In short, Proposition 19 has been incredibly beneficial to some people. Meanwhile, others have found that it has hurt their ability to continue managing their family's rental or investment properties after the original property owner has passed away. Consequently, there have been petitions to repeal Proposition 19, and time will tell if this proposition is here to stay.
How Does Proposition Impact Me?
If you own property in California and are concerned about how this proposition impacts you, reach out to Kaiden Elder Law Group, PC to discuss your situation. We understand how important it is that your estate is managed well. Effective estate planning is what ensures that you can enjoy your retirement worry-free. It is also the best way to preserve your estate for future generations. Whether you are looking for how to manage the sale of your primary residence now or you are looking for ways to limit your heirs' tax liabilities, we are prepared to guide you.