How to keep your property taxes lower when you move
There has been a little confusion with the differences surrounding California's new proposition 19 and I would like to shed some light on the changes in the homeowner tax base options compared to the options with Proposition 60 and Proposition 90 that were in place before the implementation of Proposition 19.
In short, Proposition 19 supersedes the old rules by expanding the qualifications of transferring a property's taxable value. If you're a eligible candidate, these changes can greatly affect your next escrow and title transaction to your benefit.
How does Prop 19 affect your property tax base?
Staring April 1, 2021, proposition 19 allows an owner of a primary residence to tranfser their tax based to another primary residence as long as they meet the following eligibility;
#1. Over the age of 55 years or older and if married only one spouse needs to be 55 (IRS Tax Code Sec 69.5)
#2. A person who is severely disabled or impaired (see IRS tax Code Sec 74.2)
#3. A victim of a wild fire or natural disaster
#4. Must purchase a home within 2 years of primary home sale
#5. If the original property is a multi-dwelling unit, each unit shall be considered separate
original property.
Sold Home's Value Vs Purchased Home's Value
If the replacement home is of Equal or Less value;
The replacement primary residence is of equal or lesser value, is subject to an inflation index of 105% if purchased within one year of sale and 110% if purchased within the second year of sale of the original home. The tax basis of the original principal residence may transfer to the replacement principal residence.
If the replacement home is of Greater Value;
The replacement residence is of greater value. The taxable value of the replacement primary residence is calculated by adding the difference between the full cash value of the original primary residence and the full cash value of the replacement primary residence to the taxable value of the original primary residence.
Here's a generalized example of a property tax transfer overview:
Original Primary Residence (aka-OPR) taxable value $500,000
OPR sold for $900,000
Replacement Primary Residence
(aka-RPP) purchase $1,000,000
Difference between sale price of OPR
The purchase price difference of RPP is $100,000
The Taxable Value of RPP is $400,000 plus $100,000
How Does Prop 19 Affect Inherited Properties?
Starting February 16, 2021, Prop 19 narrows the rules for parent-to-child or grandparent-to-grandchild exemption for inherited properties. The child or grandchild can also transfer the taxable value of the inherited property under these circumstances:
#1. The property is the principal residence of the child or grandchild or a family farm
#2. The homeowner's exemption is claimed within one year of the home being transferred to
child or grandchild
#3. The property is used as the principal residence and has a market value of $1 million. Any
amount above 1M would trigger an upward adjustment in assessed value.
For the complete details on all aspect of Proposition 19 Click Here
As always, we recommend speaking with a tax professional in order to effectively plan your tax strategies and real estate moves.
The Downloadable Legislative Version
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