Prop19 Property Tax Measure

We took the opportunity to break down the intricacies of Prop19 property tax measure and talk about the potential winners and losers.

Proponents of the amendment claim it closes property tax loopholes. Critics claim it opens up new property tax loopholes while raising taxes on many families. They’re both right.

The measure, backed by the California Assn. of Realtors, would expand a property tax break for homeowners 55 and older when they move. It would also curtail a tax break for the children of homeowners who currently keep their parents lower property tax payments upon inheritance — even when those properties are used as rentals or second homes.

So What is Prop19?

Due to 1978’s Prop 13, California had a unique property tax system that mostly favors long time homeowners. They pay property taxes based on their original purchase price. The tax amount will not change no matter how much their home goes up in value over time. The kicker is that, when their children inherit the home, the children inherit their parent’s favorable tax rate. What Prop 19 basically does is, it puts an end to children inheriting their parent’s favorable property tax rate. Unless they moved into the home as their primary residence within the year of inheriting the property.

The new Prop19 property tax measure or, essentially stops children from taking advantage of the Prop 13 tax break while using their parents’ home as an income property. This will also prohibit parents and grandparents from handing down vacation homes at a favorable tax rate. This is how Prop 19 closes a loophole. 

This in turn will allow the government to collect tens of millions of dollars annually. Counties will also be able to tap another new fund to make up for losses from lower assessments in the previous years. 

How is it beneficial?

It serves as home protection for Seniors, the Severely Disabled, Families, and Victims of Wildfire or Natural Disasters since Prop 19 would allow these homeowners to bring their favorable property tax rate with them wherever they move statewide for up to three moves. Under the current law, they could only take their favorable tax rate with them for one move, and it must be to a home of equal or lesser value. Now, they can purchase a more expensive property but will be able to keep an advantageous assessment. “You can now trade up,” Stone said. “The new, pricier home will come with a higher assessment, but not at market value.” This is one of the given advantages of Prop 19. 

Furthermore, the favorable tax rate only currently applies in a move within the same county to one of about 10 California counties that agree to let newcomers bring their favorable tax rates with them.

Prop 19 is undeniably a boon for older homeowners. The existing law is designed to allow seniors to downsize without seeing their tax bills skyrocket. Prop 19 expands the scope of favorable taxation for long time homeowners. This gives them incredible advantages when they compete with first-time and younger buyers in the real estate market. 

Unaddressed Grey Areas of Prop 19

What happens to taxes on inherited property is still not clear. In general, inherited homes will have higher assessments. So children who moved into the family home after the transfer can expect to get a higher tax bill. This will of course depend on the property’s market value in comparison to its assessed value. 

Below are the charts for comparison of the current law and Prop 19 for further information. These charts are intended to provide general and summary information about Proposition 19. Just a little help guide for you to make sense of the Prop19 property tax measure. It is not intended to be a legal interpretation. Nor official guidance to rely upon for any reason but instead be a presentation of summary information.

Table showing comparison between current law and Prop19 Property tax measure

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