Did you know there is a legislation that allows you to potentially save thousands of dollars in property taxes every year? In November 2020, Proposition 19 was passed, making changes to the previously-set laws around tax benefits for seniors, severely disabled, victims of natural disasters, and transfers between family.
Most homeowners aren’t aware that it even exists, but our clients who have taken advantage of Prop 19 have been able to save tens of thousands of dollars. Today, we’re diving into the details so that you can understand exactly what it entails and start saving on property taxes too.
Homeowners who are 55 years or older can qualify to transfer the “tax value” of their primary residence to a replacement primary residence. Here are a few rules to keep in mind:
• must be 55 years or older (if there are two or more people on title, at least 1 person must be 55+)
• can only be used for the sale/purchase of a primary residence (cannot be an investment property)
• you must purchase or build your replacement property within 2 years of selling your original residence
• can be used up to 3x in a lifetime
• the new property you are purchasing must be in the same state (California)
• new residence can be equal, lesser, or greater value (if greater, the difference will be added)
• the “tax value” is only for the base amount (any special assessments are added to the top)
For general rule of thumb, the formula is:
current assessed value + (new purchase price - sold property price) = new assessed value
To put this all into perspective, let’s take a look at a specific example.
Pam and Paul bought their Chino home back in 1991 for $100,000. It was a charming pool home that was perfect to grow their family into, but fast forward 32 years, and it’s time to make one final move. Their children are all grown now, with families of their own, and Pam and Paul are ready to retire at the age of 60. They sell their Chino home for $650,000 and buy their forever home in Corona for $700,000. It’s a cozy single-story home with an extra bedroom for when the grandkids are over, a nice-sized yard for Pam to plant her rose garden, and a private community golf course for Paul to enjoy.
Plugging that scenario into the formula above, it would be: $100,000 + ($700,000 - $650,000) = $150,000.
That means that Pam and Paul bought their new home for $700,000, but they are paying taxes based on a property value of $150,000! The annual property tax on their new home would have been $8,400, but with Prop 19, Pam and Paul are only paying $1,800. That’s a difference of $6,600 every year!
Victims of Natural Disaster
If you are a victim of a natural disaster, you may also be able to qualify for this tax benefit under Prop 19. In order for it to be classified as a “natural disaster” it must be either a wildfire or a governor-declared disaster. The home repairs must also be more than half of the home’s original value to be considered substantially damaged. In this case, the same conditions above for seniors will still apply, with the exception that there is no age requirement.
In the past, many people were wary and hesitant about passing property down through the family as an inheritance because of the high taxes. The good news is that Prop 19 has now made the tax load a little lighter.
In order to qualify, the child or grandchild receiving the property must claim it as their primary residence. If it is a transfer between grandparent and grandchild, the grandparent(s) on title must be deceased.
Normally, when a property is transferred, the county will re-assess the property and tax the new owner based on the reassessed value. With home prices constantly appreciating, the receiving child will usually have to pay much higher taxes than what the parents were paying. However, with Prop 19, the child is given a $1,000,000 allowance in property assessed value. This means that they are essentially given a $1M “cushion” to cover the difference between the original value and the reassessed value.
For example, Mary inherited a house that her parents bought years ago for $300,000 (the Factored Base Year Value or FBYV). Let’s say that house is now worth $1,600,000. From that new value, if we take away the original home value of $300,000 and the $1,000,000 allowance from Prop 19, the total change in taxable value is $300,000. The total change in value ($300,000) is added to the original cost of the home ($300,000) to give you your new tax rate of $600,000. In essence, Mary’s home is worth $1,600,000, but she is paying taxes based on a $600,000 value!
No matter which category you fall into, it’s a super simple process to take advantage of Prop 19. We can provide you with the paperwork needed, and all you have to do is complete it and mail it to the County Recorder’s Office! Our trusted title representatives are also available to help you fill it out and answer any questions you may have.
We know. It’s a lot of information to digest.
That’s why we’re here! Schedule a no-obligation call with our team and we’ll break down the information for you, piece by piece, and help you understand exactly how you can take advantage of Prop 19 to save thousands of dollars in taxes every year. We can’t wait to chat with you!