Californians voted in November 2020 to make some significant changes to Proposition 13, which was passed in 1978 to greatly limit the amount of property tax that the state could collect. 40+ years later, some of the problems with Proposition 13 had become clear, and Proposition 19 was designed to correct some of these. There are a great many questions that people have regarding what Prop 19 means for Californians, so the California Association of REALTORS prepared a California Proposition 19 FAQ which can be downloaded here.
Proposition 19 is a modified (watered-down) version of Proposition 5, which had gone down to defeat in a statewide vote two years prior. These propositions were crafted and promoted in large by the California Association of REALTORS, which recognized that one reason the turnover of homes has slowed down was due to homeowners being “stuck” with a low property tax basis.
Thanks to Prop 13, many California property owners enjoyed very low property tax. One unintended consequence of this was that long-time California property owners would choose to stay in homes which no longer met their wants or needs, but were inexpensive to own thanks in large part to the low property tax basis they enjoyed. This tamped down inventory, further exacerbating California’s real estate supply shortgage.
Propositions 60 and 90 did allow some transfers of property tax basis. Prop 60 allowed for intra-county transfers, and Prop 90 allowed for transfers to and from a limited and specific set of counties.
Proposition 19 allows many California property owners to transfer their property tax basis to a new property in any county. To take advantage of the ability to transfer your property tax basis under Proposition 19, you must:
- Be 55+ years old – or
- Be severely disabled – or
- Be the victim of a wildfire
Proposition 19 limits the number of transfers which can be made to a total of 3, except in cases where the home was destroyed by a fire. Such transfers do not count to the limit of 3 transfers.
What’s more, with Proposition 19 there is no limit on the price of a “replacement” property. However, if the replacement property is more expensive than the property you’re moving from, the replacement property’s tax basis will be a blend of your old basis and the new purchase price.
Unfortunately, it’s not all good news with Proposition 19. An owner’s old Proposition 13 tax basis could be inherited by family members, but this has been limited now with Proposition 19. Now, the tax basis can only be inherited if the heir lives in the property and makes it their single-family residence. What’s more, the increase in basis can only be limited by a maximum of $1 million – any increased basis beyond that would be taxable.
It is expected that Proposition 19 will generate some additional tax revenue for the state of California. The measure created the California Fire Response Fund (CFRF), which will receive 75% of the revenue generated by Prop 19. Money in the CFRF will be used to improve staffing and equipment to fight and prevent wildfires. Another 15% of the money will go to the County Revenue Protection Fund, which is designed to reimburse counties in the event that they suffer revenue loss from Proposition 19.
For more information on California Proposition 19, please download the Proposition 19 FAQ prepared by the California Association of REALTORS.