How Prop. 19 Benefits You

Most residents are familiar with Proposition 19 — the California Constitutional Amendment that changed the way property taxes are calculated in California. After all, they voted on it during the 2020 general election. But not all homeowners really understand how Prop. 19 benefits them.

Prop. 19 changed the way taxes are calculated on those who inherit property. An increased tax rate on these properties is now used to help certain groups of homeowners looking to move, including the following:

• Those over the age of 55
• Disabled homeowners
• Victims of natural disasters

But first, a little background. In 1978, voters approved another ballot initiative, Prop. 13, which limits the amount that property taxes can be raised each year. It aimed to keep neighborhoods strong by encouraging homeowners to remain in their home rather than being priced out due to taxes alone.

This lower tax base, or Prop. 13 cap, also extended to heirs upon a homeowners death. Under Prop 19, this lower rate only extends to children who reside in their parent’s home as their principal residence. Otherwise, the property will be reassessed and the additional funds used to support the new law.

Proposition 19, officially known as The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or National Disasters Act, encourages upward mobility for qualified homeowners. The most notable benefit is for those over the age of 55, who can now move up without the fear of reassessment and being priced out of the market. Now, they are allowed to keep their current tax rate when selling their existing home and buying another. The restrictions include the following:

• It must be their principal residence.
• They must purchase or build the new home within two years of selling the previous home/
• The new home must be in California.
• They can transfer the tax base three times.

So, how does Prop. 19 benefit you? If you’re over the age of 55, disabled, or a victim of a natural disaster (such as a wildfire), it allows you to purchase a new home anywhere in the state and carryover the same property tax base to the new property. In other words, the new tax rate will be based on the previous home’s assessed value. There are several benefits to this new structure:

Flexibility. Qualified homeowners can move wherever life takes them. For some, this means the ability to move closer to grandkids without taking a financial hit. For others, it means moving away from fire-prone areas for safety and security. For others, it may mean moving out of high-cost areas to more affordable spots.

No minimum residency requirements. You don’t have to have lived in your home your entire life to reap the benefits of Prop. 19. You’re eligible as long as you are a qualified homebuyer as mentioned above. The only requirement is the home is your primary residence and that you have not transferred a lower tax base within the last two years.

Blended calculation. Prop. 19 also has a blended formula for those who move to larger, more expensive homes. For example, say you’ve lived in your Sacramento home for 40 years, and the assessed value is $300,000, but the current market value is $800,000. You could either buy a property for $800,000 and keep the $300,000 tax base, or buy a more expensive house, say for $900,000, and use a blended calculation for a reduced rate. Following are the value guidelines:

• 100 percent or less of the full cash value of the original home if a replacement home is purchased or newly constructed before the sale of the original home
• 105 percent or less of the full cash value of the original home if a replacement home is purchased or newly constructed within the first year after the sale of the original home
• 110 percent or less of the full cash value of the original home if a replacement home is purchased or newly constructed within the second year after the sale of the original home.

Makes upgrading/downgrading easier. Many homeowners, especially those over the age of 55 who’ve lived in their homes for extended periods, are fearful of taking the next step in their housing needs because of the fear of increased property taxes. This act helps to offset those fears by providing tax relief. It helps with upward (or downward) mobility, allowing qualified homeowners to find the home that meets their current needs. This is especially important for older homeowners, who may need a smaller, more manageable home, and disabled homeowners, who may need a home with accessible features.