Prop 19’s New Laws for Property Tax Exemption

Proposition 19 has now passed in California, and with it brought changes to how property tax is reassessed for some purchases, effective April 1, 2021. The new law replaces Prop 60 and Prop 90, affecting replacement property by homeowners who are over 55, severely disabled, or whose home has been substantially damaged by wildfires or natural disaster. It allows the homeowners to transfer their original home’s taxable value to a replacement property. It’s unclear as of yet how properties sold prior to April 1 will be treated if the replacement purchase occurs after this date. Regardless, the replacement purchase must occur within two years of the original property’s sale.

Under prior law, this type of reassessment could only be applied if the purchase was made in the same county as the prior residence or in specific counties. Under new law, it applies throughout California. Additionally, prior law required the replacement home to have equal or lesser value than the original home. Prop 19 has provisions for an adjusted rate in a circumstance where the value is greater. The adjusted rate is calculated as the original home’s taxable value plus the difference between the replacement home’s purchase price and the original home’s sale price. This reassessment can be applied up to three times, or indefinitely any time that it is applied under the provisions for substantial property damage.

With Prop 19 also came a change to intergenerational transfers. Previously, a child or grandchild could inherit a property with no change to the property tax amount. Effective February 16, 2021, that exemption from reassessment applies only while the heir is using the property as their primary residence, and only if the heir claims a homeowner’s or disabled veteran’s exemption within one year of the transfer. The new law also requires that the property continue to be used as the child or grandchild’s primary residence. Once the property is no longer their primary residence, the property will be reassessed.

If the value of the inherited property is more than one million dollars greater than the original purchase value, there will be a partial reassessment. Essentially, the heir is allowed to use the original purchase value, plus one million dollars as the baseline property value. Above that, normal property taxes are applied.

In addition, family farms are now also included in properties that can retain their taxable value when transferred. Farms are not subject to the primary residence test, however all other qualifications and exemptions apply.

Photo by Markus Winkler on Unsplash

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