How are property tax assessment transfer rules changing due to Proposition 19?

If you are one of the many people in California who at some point considered moving but decided not to because your property taxes would increase sharply, you could be in luck now.  Proposition 19, which passed in the last election and goes into effect April 1, 2021, allows a homeowner who is 55 or older, severely disabled, or whose home was substantially damaged by wildfire or natural disaster to transfer their property tax assessment to a new replacement home with fewer restrictions than is currently the case.  Here are the main ways the rules will be different when it goes into effect:

(1) Currently, to be eligible for an assessment transfer, your new property must be either in the same county as the home you sell, or in one of the very few counties that allow transfers in from other counties.  Under Prop. 19, your new residence can be anywhere in the state.

(2) Under the current rules, you can only transfer your assessed value one time.  Under Prop. 19, you can transfer your assessed value up to three times (or potentially more for those who lost a home to fire).

(3) Under the current rules, your new property must be of “equal or lesser value,” or else you do not qualify for a transfer.  Under Prop. 19, the new property can be of any value.  If you pay more for your new home than what your old home sells for, you keep your old tax assessment for the portion of the new property up to the value of your old property, and the amount over is added to your tax base.  Here’s an example.  Suppose your old house sells for $1M, and the assessed value on that property was $500K.  If you qualify for a transfer and buy a new home for $1.2M, the assessment on the new property will be $700K (your old assessment of $500K on the first $1M, plus the amount over the value of your old house, $200K). If you buy a property that is of equal or lesser value, you keep your old assessment with no adjustment.  To complicate things a bit more, it may end up being the case (as it is now) that there is an inflation factor if you sell your old property first.  Under current rules, you can actually spend 5% more than the sale price of your old property in the first year, or 10% more in the second year, and still keep your old assessed value.  Whether this will be the case under Prop. 19 is yet to be completely determined.

There are, of course, some restrictions.  To do an assessment transfer at all, you need to be 55 or over, severely disabled, or have lost a home to wildfire or natural disaster.  You have to buy your replacement home within two years of the sale of your previous home, and both properties have to be your primary residences.   You can, though, buy the new property before selling the old property, or vice versa.

Prop. 19 is a great opportunity, but if you’re thinking of taking advantage of it, be sure to talk to a qualified California real estate attorney and/or a professional tax advisor about how this applies to your specific situation.  While you’re talking to your tax professional, make sure you also discuss what capital gains taxes may be triggered by a sale.