Oct 8, 2021

AKA Prop 19, “ The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire and Naturals Disasters Act”.

Just in case you missed it, the property tax situation in California was dramatically altered by the recent passage of California Property 19.

It was February 16, 2021, when the world was reporting millions of COVID-19 cases. It was also California’s second-deadliest month of the pandemic. And right in the middle of all that, Proposition 19 became operative.

BASE YEAR VALUE TRANSFERS (Effective April 1, 2021)

Prop 19 is great news for people over age 55, disabled, or victims of natural disasters . They can now transfer their primary residence’s property tax base to a newly purchased or constructed replacement residence of any value, ANYWHERE in the state. Prior to Prop 19, there was a limit of one transfer, only within certain counties and to homes of the same or lesser value.

There are criteria. First, you or your spouse must be age 55 or older when the original residence is sold. Second, the replacement residence must be purchased within two years either before or after the sale of the current residence. Third, one of the transactions must occur on or after April 1, 2021. [If prior to April 1, 2021, you may file for the exclusion under Proposition 60/90 base year transfer rules; however, you are not eligible for the exclusion under the new Proposition 19 rules]

The application for the transferred tax basis can be applied for once the sale and purchase have been completed and you occupy the replacement residence as your primary residence. The claim must be filed with the local County Assessor’s office where the replacement primary residence is located.
There is generally a non-refundable processing fee. Keep in mind that this will have no impact on the any Mello-Roos assessments. These are calculated separately.

Example #1-Market Value of Replacement Residence is less that Market Value of Original Home (i.e., you downsized)

Original Home
Tax base Value: $300,000
Market Value/Sales Price $900,000

Replacement Home
Purchase Price/Mkt value $700,000
Tax base Value: $300,000

Example #2 – Market Value of Replacement Residence is MORE than the Market Value of Original Home (i.e., you made a mint on your home and bought something more expensive)

Original Home
Tax base Value: $300,000
Market Value/Sales Price $900,000

Replacement Home
Purchase Price/Mkt value $1,400,000
Tax base Value: $800,000 (what ???)

The replacement home tax base is calculated as follows:

New Market Value of $1,400,000 – less old market value of $900,00 = an increase of $500,000. Increase of $500,000 + original tax base of $300,000 = $800,000 new property tax base.

Estimated property taxes 1.25% w/ Prop 19 = $10,000.
Estimated property taxes 1.25% without Prop 19 = $17,500
You can test your numbers here: www.prop19calculator.com


Up until February 15, 2021, a personal residence transferred by inheritance or gift WAS excluded from property tax reassessment. Children inherited the property AND the “low” property tax bill. This was the famous Proposition 13 value which has been California law for over 40 years.
Proposition 19 is not good news for those inheriting property from their parents. ALL property transfers to children will be reassessed with the one limited exception for the transfer of a primary residence.
Prop 19 states that if a home is not used as the child’s personal residence within one year, it will be reassessed at market value. There is NEW three-part test for inherited property under Prop 19.

  1. The property must have been your parent’s primary residence at the time of transfer or death.
  2. The child must then live in the property and make it their primary residence, within one year of the transfer or death
  3. If the home’s fair market value at time of death is over $1 mill, then there will be an increased property tax bill for anything above the old basis + plus the $1,000,000.

The phrase “primary” residence is very important. There is no benefit for 2nd homes, investment property, commercial property, or rental property. They will all be fully reassessed at fair market value at the date of death. Property held in a revocable trust will do nothing to prevent reassessment.

Tax Base Value of Inherited Primary Residence (retained as a primary residence)
Tax base Value: $300,000
Market Value/Sales Price: $1,500,000

Step 1 – Calculate the exclusion amount:
The original $300,000 + plus the statutory $1,000,000 = $1,300,000 excluded.

Step 2 – Calculate the additional assessment amount (if over $1 mill):
The current Market Value $1,500,000 – less the exclusion of $1,300,000 = $200,000 additional assessment.

Step 3 – Calculate the new tax base:
Original base of $300,000 + plus the additional assessment $200,000 = $500,000.

Tax Base Value of Inherited Primary Residence (beneficiaries convert to rental)
The phrase “primary” residence is very important. If you live in the property for three years and then move out and rent to someone else, your property taxes will change to reflect the removal of the “primary residence” exclusion.
For the three years the property was your family home, your taxable value was $500,000 adjusted by the inflation factor. When you convert to a rental, you no longer qualified for the homeowners’ exemption. Your new tax value will be $1,500,000 adjusted for the inflation factor for each year you owned the property.

Tax Base Value of Inherited Primary Residence (beneficiaries sell parent’s home)
Taxable Value: $300,000
Market Value/Sales Price $1,500,000

Assume you inherited your parent’s family home in July of 2021. The property does not benefit from any type of exclusion because you will not be moving into it. The property will be reassessed at the current market value $1,500,000 effective as of the date of inheritance. If the property is sold in November of 2021, you will be assessed additional property taxes for this 5-month period (Jul-Nov)
$1,500,000 x 1.02% tax rate = $15,300 annually / 12 mos. * 5 mos. = $ 6,375
Trustees beware. Any beneficiary selling an inherited home WILL have an increase in the property tax assessment. It is likely that this additional assessment could come months after you thought every was completed. Remember to hold back adequate funds to pay a late property tax assessment.
So by now you are squirming to get avoid Proposition 19. There are many considerations to address when thinking about transfers such as Family Limited Partnerships, changing title to “joint tenancy” or merely gifting. You should proceed with caution. UNLESS individuals have the same proportionate interest in the new legal entity, you could trigger a reassessment. There are also times when an outright transfer could violate the “due on sale clause” of the current loan. Also, gifting the home would give up access to the “step-up” basis which would otherwise help you avoid a capital gains tax post date of death.
It’s advisable to get expert legal advice on how to proceed and how to ensure proper documentation and substantiation is filed with the county assessor in a timely manner.
The BOE prepared a simple chart showing the differences between current law and the new law going into effect under Prop 19 if you click www.//boe.ca.gov/prop 19//
A list of the 58 California County Assessors are available on the Board of Equalization website at: https://www.boe.ca.gov/proptaxes/countycontacts.htm.

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