We all know about the upcoming presidential election, but did you know about the slew of propositions on the ballot awaiting voters’ decisions? Proposition 19 is one of major importance to the real estate industry.
In discussing Proposition 19, it is crucial to understand that any time real property is transferred from one party to the other the county assessor has the opportunity to reassess it.
Reassessment consists of looking at comparable property values for the reassessed property and applying the county tax based on that new value. This almost certainly will result in an increase in the property tax — as property values in California continue to rise.
Moreover, property held by a party for many years will have a much lower assessment than a parcel purchased today. This low assessed property value is the result of Proposition 13, which only allows the county assessor to raise property taxes up to 2% yearly, even if the assessed value would exceed this amount.
Moving to Proposition 19, an individual 55 years or older can take their current tax assessment with them on the purchase of a new home. To enjoy the benefits of Proposition 19, the homeowner must be moving to a home of equal or lesser value.
Elimination of Heir Exemption
In addition to the tax portability provided by Proposition 19, the law eliminates an exemption used by heirs. The so-called parent to child or grandparent to grandchild exception (made constitutional by Proposition 58) will be modified by Proposition 19. Currently, a parent can transfer real property to their children and vice versa, without facing an assessment.
Under the new law, the transfer of property from a parent to a child or grandparent to a grandchild can only be used if the transferee plans on using the property as the primary residents. Further, the value of the property must be under $1 million to use the exemption.
Reactions to Prop 19
There are varying viewpoints on the new proposition. Some argue that the new law will allow older individuals to downsize without the added expense of a new tax assessment. The incentive will likely increase the housing supply in California, which is currently at an all-time low. This could also be a boon to California Realtors, who will be tasked with assisting in the sale and purchase of these properties.
In contrast, others argue that the proposition will increase the tax burden on those inheriting property. Some estimate that eliminating the parent/child and grandparent/grandchild exemptions will affect 40,000 to 60,000 families in California.
Of note, the money raised by Proposition 19 will increase taxes and generate hundreds of millions in annual revenue for items such as fire protection, affordable housing, homeless programs, safe drinking water, etc.
Whether you like or dislike Proposition 19, do not stand by and let others make decisions for you, on November 3, 2020, vote yes or no on Proposition 19.