Photo by Khwanchai Phanthong
California voters approved Proposition 19, the Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment, as a legislatively referred constitutional amendment on November 3, 2020. With more than 15 million votes counted, the measure received 51.1% of the more than 15.3 million votes cast.
How did the Prop 19 measure change the property tax transfers?
Effective April 1, 2021, this measure authorizes eligible California homeowners who are aged 55 or older, or severely and permanently disabled at any age, to transfer the "taxable value" of their primary residence to a replacement property up to three times anywhere in the state, enabling them to move without facing higher taxes. The "taxable value" refers to the base year value plus inflationary adjustments, commonly known as a factored base year value. There is no limit to the market value of the replacement property compared to the original property, with any excess amount over the original property's market value added to the transferred value. The replacement property's market value can exceed the original's market value by up to one hundred and five percent (105%) if purchased within the first year after the sale of the original property or up to one hundred and ten percent (110%) in the second year, with no excess added to the transferred taxable value.
Proposition 19 benefits California voters by providing housing and tax relief for seniors and wildfire victims while generating much-needed revenue for schools, fire districts, cities, and counties facing budget shortfalls due to the economic impact of COVID-19.
How did the Prop 19 measure affect inherited property tax?
Proposition 19 allows parents and grandparents to transfer primary residential properties to their children or grandchildren without resetting the property's tax assessment to market value. Other types of properties, such as vacation homes and business properties, can also be transferred from parent to child or grandparent to grandchild, with the first $1 million exempt from reassessment when transferred.
The measure eliminated the parent-to-child and grandparent-to-grandchild exemption in cases where the child or grandchild does not use the inherited property as their principal residence, such as when the property is used as a rental house or second home. In cases where the inherited property is used as the recipient's principal residence but sold for $1 million more than the property's taxable value, an upward adjustment in assessed value would occur. These rules also apply to certain farms. Beginning on February 16, 2023, the $1 million exemption amount will be adjusted annually at a rate equal to the California House Price Index change.
References
California State Legislature, "Assembly Concurrent Resolution 11," accessed May 8, 2019
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