Have you heard of Proposition 19? It has been in effect for 2 years now, and yet I speak with homeowners frequently who don’t completely understand it and don’t realize it can provide a huge financial benefit to them! So I thought I’d break it down for you in order to provide a little more understanding of who it helps, and how it helps them!
There are 2 parts to Proposition 19 in California. The first part provides one of the greatest tax benefits available in the State and is available for anyone 55 and over that is moving from (selling) one primary residence to (buying) another, anywhere in the state. It also applies to sellers any age who are severely disabled, OR people any age who were victims of wildfire or a natural disaster. There are a lot of details and intricacies so I’m going to try and simplify it for you as much as I can.
WHO CAN QUALIFY?
Anyone 55 or older who is on title to the property, any severely disabled person on title, or any person who lost their home due to a wildfire or natural disaster.
HOW DOES IT WORK?
We all know how property values have soared over the past few years. This is a blessing a curse. Great to have so much equity to allow you to purchase a higher priced home, but if you’re on a fixed income, moving could be unaffordable because your new property taxes will be through the roof!
Not if you qualify for Prop 19!
With Prop 19 you can transfer your property tax basis from your current primary residence to your new primary residence upon completion of a sale and purchase. If your replacement property is of equal or lesser value than the house you sell, you will not have to pay any additional taxes. If your replacement property value is higher than the sale price of the home your selling, you will have to pay property taxes based on the difference of the price of the 2 homes plus your transferring basis.
For example, let’s say your property taxes (approximately 1% of purchase price) are based on a $300,000 purchase price from 20 years ago. We’ll say that’s $3,000 annually. If you sell that home for $1,000,000 and buy a new home for $1,000,000 or less, your property taxes stay at $3,000 annually. If the home you purchase is $1,500,000 you will take your $3,000 basis and pay additional property taxes based on the difference of the new residence and the past residence which is $500,000. So, you will pay an additional $5,000 annually. So, you will only pay $8,000/year instead of $15,000/year! That’s a savings of $7,000 annually!
WHERE CAN YOU USE IT?
You can use this when selling and buying anywhere in the state of California, as long as it is your primary residence.
WHEN CAN YOU USE IT?
It doesn’t matter if you buy or sell first, but the tax transfer must be completed within a 2-year period from the sale.
Many people feel stuck in their current homes even though they have tons of equity. Moving and purchasing a new home would be unaffordable if they had to pay the new assessed property taxes based on the purchase price. Being able to transfer the tax basis allows homeowners to take advantage of the equity in their property, but not have to pay exorbitant annual property taxes. Prop 19 allows homeowners the the freedom to upgrade their lifestyle without increasing their property taxes.
You can take advantage of this transfer up to 3 times, so you have flexibility as your life changes over the coming decades to make the lifestyle changes you need affordably!
It frees up housing that empty nesters no longer need but were afraid to move from because of affordability issues due to higher property taxes.
For more information you can visit the California State Board of Equalization. Or you can contact your local county tax assessor’s office.
The other part of Prop 19 addresses inherited properties such as Parent-Child Transfers & Grandparent-Grandchild Transfers. I’ll go over that next week!
If you have any questions do not hesitate to reach out to me!
As always, I am your go to source for all things real estate.
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