Proposition 19, a California property tax measure, has brought significant changes that provide homeowners, 55 and older, with a unique opportunity to downsize their homes while preserving their property tax savings. For those who've enjoyed the benefits of Proposition 13 and have watched their property values soar, this new law can be a game-changer. In this blog post, we'll walk you through a real-life scenario to understand how homeowners can take advantage of Proposition 19 when selling their homes and buying new ones anywhere in California.
Scenario: Downsize with Proposition 19
Meet Jackson, a 58 year old homeowner in California. He has lived in his home for years and has seen its market value grow substantially. His home is now worth $1,800,000, but his property tax basis remains at a much lower $600,000, thanks to the protections offered by Proposition 13.
Step 1: Sell the Original Home
Jackson decides it's time to downsize, as he no longer needs such a large space. He lists his original home for sale at its current market value of $1,800,000. Soon enough, he finds a buyer, and the sale goes through.
Step 2: Purchase the New Home After April 1, 2021
With the sale of his original home complete, Jackson is ready to buy a new, more suitable home. However, he does so after April 1, 2021, which is the critical date when Proposition 19 became operative.
Step 3: File for Base Year Value Transfer
To take advantage of Proposition 19, Jackson must file a claim for a base year value transfer. He does this with the local County Assessor's office where the new home is located. There are specific claim forms created for base year value transfers under Proposition 19, making the process straightforward.
Step 4: Base Year Value Transfer Calculation
In Jackson's case, the purchase price of his new California home is $1,200,000, which is less than the market value of his original home ($1,800,000). As a result, Jackson can transfer his low property tax basis of $600,000 from his original home to his new home.
Result: Enjoy Lower Property Taxes
The outcome of this process is that Jackson successfully transfers the lower property tax basis of $600,000 from his original home to his new home. Consequently, his annual property tax bill for the new home will be based on this lower tax basis, even though the new home's market value is substantially higher. The result? Significant property tax savings for Jackson, allowing him to downsize to a more affordable property without the burden of higher property taxes.
Extra Credit
What happens when your new home is of greater value than your original primary residence? Proposition 19 still provides huge tax savings once filed with your new county. You can use this Proposition 19 Calculator to see what your savings would look like post closing.
Conclusion: Proposition 19 Provides Flexibility for California Homeowners
Proposition 19 has introduced flexibility for California homeowners to downsize their homes while still preserving their property tax savings. This is especially advantageous for those who have seen their home values rise significantly under Proposition 13. By selling their original primary residence and purchasing a new one after April 1, 2021, homeowners can take advantage of the base year value transfer provisions, potentially reducing their property tax liability and making downsizing a more financially feasible option.
If you're a California homeowner considering downsizing or making a housing change, Proposition 19 might be a valuable tool to help you save on property taxes. Remember to consult with a qualified professional or the local County Assessor's office for personalized advice to navigate this process effectively.
If you would like more information on Proposition 19 checkout Stewart Title's FAQ's on the matter HERE.
Disclaimer: The information provided in this blog post is for general informational purposes only and is subject to change without notice. It should not be solely relied upon for making property tax decisions. Always consult with a qualified professional or your County Assessor's office for personalized guidance and advice.
