Steve Coker, CFP
Moving in Retirement? How to Keep Your California Property Tax Basis under Proposition 19
Proposition 19, which went into effect in 2021, can help California retirees save thousands of dollars when moving to a new home in retirement. The dramatic increase in home prices over the past few years left many retirees with home values that significantly exceed their property tax basis. Typically, when purchasing a new home, the property tax basis is reset to the new home’s purchase price, so purchasing a new home can result in a costly increase to property tax bills. However, Proposition 19 allows property owners over the age of 55, subject to some restrictions, to sell their principal residence in California and transfer their Property Tax basis to a new home in California. Simply put, the law provides a way for retirees to move to a new home without resetting their Prop 13 tax basis, potentially saving thousands of dollars in property taxes each year.
Proposition 19 replaces Proposition 60 and 90, which allowed for a similar basis transfer for individuals over the age of 55. The details complex but here are some key changes under Proposition 19:
1) The rule is now statewide – no more worrying about whether the county participates.
2) You can transfer 3 times! – the old rule allowed only a one-time basis transfer
3) If the full cash value of the replacement home is greater than the full cash value of the original home, the difference in the full cash values will be added to the transferred factored base year value – the old rule required the new home to be of equal or lessor value.
4) Proposition 19 has a value limit test that essentially limits the exclusion to $1 million plus the taxable base year value.
5) Property tax basis transfers are now available, in certain circumstances for victims of wildfire or natural disaster.
6) There is a new Parent-child and Grandparent-Grandchild Exclusion which allows for basis transfers to children under certain circumstances.
A little background may be helpful. Most California homeowners are familiar with Proposition 13, the California property tax law, enacted in 1978 that sets a limit on property taxes, 1% of the assessed value of the home. More importantly, Prop 13 sets a 2% maximum increase on the assessed value. As a result, homeowners in California pay a relatively consistent property tax each year with only small annual increases and those who have stayed in the same home for many years often pay a much lower property tax bill. As intended, Proposition 13 significantly helps retirees and those on a fixed income, allowing them to stay in their homes instead of being taxed out of their homes when home prices rise. Of course, Proposition 13 allows the property tax basis to be reset when the homeowner purchases a new home, so retirees who move without invoking Proposition 19 could be hit with a significant jump in property taxes
Here are some of the key details to consider when applying for a Proposition 19 Property tax basis transfer.
1) Both properties must be your principal residence.
2) You must purchase or newly construct the new home within 2 years of the sale of your original home.
3) Proposition 19 applies only to transactions completed after April 1, 2021.
4) You must apply for the property tax basis transfer with the County Assessor where your new home is located. You can find the appropriate form by calling your County Assessor or visiting the Assessor’s website.
It is a good idea to check with you local County Assessor’s office to verify eligibility. There are also some great resources on the State of California Board of Equalization website: https://www.boe.ca.gov/prop19/.