California’s Proposition 19

What Does it Mean for Real Estate?

Did you know that Proposition 19 will spark economic recovery in California? This measure will open up tons of thousands of housing opportunities, making homes more readily available for first-time homeowners, families, and Californians throughout the state.

So What is Proposition 19?

Proposition 19 is a measure expected to significantly change property tax rules for older homeowners selling their houses and family members inheriting homes and rental properties.

With more than 15 million votes counted, Proposition 19 is a win-win for California voters providing needed housing and tax relief for seniors and wildfire victims, and generating much needed revenue for schools, fire districts, cities, and counties as they face budget insufficiencies due to the devastating economic impact of COVID-19.

There are two distinct parts, the first of which allows homeowners who are 55 or older or those who lost their home in a natural disaster to transfer their tax assessment to a new home. The tax value of the new home will be added to the current tax assessment (if the new home is more expensive). A transfer like this can be done up to three times and homeowners will still have two years to sell their current home and buy a new one.

The second part of Proposition 19 removes the ability for a home to pass from a parent to a child or grandchild without first reassessing the homes value (unless it’s the child/grandchild’s primary residence). If the child/grandchild doesn’t live in the inherited home and decides to rent it out, the tax value can also be reassessed.

Background

Proposition 19 builds off the property tax system from more than four decades ago when Californians passed Proposition 13, which limited property taxes to 1% of a home’s taxable value, (based on the year the house was purchased). The 1978 ballot measure also restricted how much that taxable value can go up every year, even if a home’s market value increases much more.

Homeowners receive more benefits the longer they remain in their homes because their tax bills stay restricted even as their home’s market value goes up. So residents could face a surge in tax payments if they move to a new home — this is the issue that Proposition 19 seeks to address.

C.A.R.

The California Association of Realtors greatly supported the proposition. They spent $35 million to help promote this measure they believe will encourage more home sales. The passing of Proposition 19 would not be possible without the tremendous support of C.A.R. members. Thousands of members educated clients and colleagues, shared Prop. 19 information on social media, wrote letters, advocated for endorsements and supported the Association every step of the way. Legislators also hope this measure will calm fears of those who want to move but are concerned about rising taxes.

Who Benefits from Proposition 19?

Homeowners over the age of 55, severely disabled residents and people whose properties have been damaged by wildfires or contamination. Family trusts are generally treated the same as individual owners. Existing law is designed to allow seniors to downsize without seeing their tax bills skyrocket. Prop 19 expands favorable taxation for longtime homeowners, giving them significant advantages when competing with first-time/younger buyers in the real estate market. It is a blessing for older homeowners as well as realtors, who expect to see more home sales.

Will Proposition 19 Bring New Tax Money?

It is estimated that by ending exemptions on inherited property, the government will collect millions of dollars annually. The total could grow to hundreds of millions as more properties receive higher assessments.

Prop 19 created the California Fire Response Fund, which is a dedicated source of money for firefighters.

“I work with first-time buyers throughout the county, and the majority of my clients are military and using their VA loans, so they don’t have a lot of liquidity,” said Alanna Strei, a California-based Realtor who said she has a “backlog” of first-time buyers looking to get into a home. “The more inventory available, the more they are able to compete with cash buyers and investors who snap up all the ‘good deals’. And allowing elderly, disabled, and those displaced by natural disasters to carry their tax basis with them across the state just makes sense.”

“Passing Prop-19 is a game-changer,” says Monique Bryher, a broker-associate and Realtor in California. “Both in terms of properties being sold that would have been passed on through a family trust, or by the beneficiaries who decide they either can’t afford to pay property taxes based on a current assessed value, or just don’t want to pay the higher property taxes. The state’s going to make a lot of money.”

Educating the public on the ways to use Prop 19 to their benefit is crucial, Strei said. For example, senior citizens don’t have to “succumb to a reverse mortgage” and can instead sell their home and retain equity, she said.

“They can use a portion of it to buy a smaller property appropriate for their current life circumstances, while maintaining their tax basis and being able to make their payments,” she said. “It is CAR’s job and our job as Realtors to continue to educate people who may have felt ‘stuck’ for decades as home prices have increased so dramatically.”

Source: www.housingwire.com/articles/why-car-campaigned-for-californias-proposition-19/

Starting Dates

The new changes to property transfers among family are set to begin on Feb. 16, 2021. Property tax transfers for the elderly, disabled and natural disaster victims will start April 1, 2021. It is unclear if current homeowners looking to take advantage of the measure will have to wait until February or April to do so. With mortgage rates so low, some homeowners may want to complete one of the transactions in advance of those deadlines.

Proposition 19 is likely to cause real estate owners to evaluate their future plans. They must decide whether to buy, sell or transfer ownership of their homes before the measure takes effect.

For comments or inquires contact:

Alex Khodadad, Broker, CPA
DRE#01719021
1930 Contra Costa Blvd.
Pleasant Hill, CA 94523
(925) 705-1300

info@delphirealtygroup.com
delphirealtygroup.com

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