Reading the title gives you a sense of who the big winners are when making transactions for Pacific Beach property. What’s not in the title is any mention of another group that it affects just as much.
In short, the winners are senior citizens who will now be able to receive what can be a significant property tax break if they sell their home and buy another one in California’s current hot real estate market. As Prop 19’s title implies, it also gives a property tax break to the disabled and people whose homes have been destroyed in one of California’s many devastating wildfires or other natural disasters.
The losers are children who inherit a home from their parents and intend to use it as a second residence or rental. They now lose the lower property tax assessment their parents paid and instead will have to pay property taxes based on the current market value. As anyone who has paid property taxes in California knows, that can be a substantial increase. The new rules also apply to commercial property passed from parents to children.
The California Association of Realtors was the principal backer of Prop 19 for several reasons. One was to help senior citizens avoid a big tax bill if they moved during their golden years, and the other was to help open up the number of homes for sale at a time when The Golden State is suffering from a tight housing supply as well as soaring prices.
Here’s a deeper dive into Prop 19, which passed with 51% of the vote.
California’s property tax system explained
In 1978, Californians approved Prop 13, officially known as the People’s Initiative to Limit Property Taxation. Prop 13 limits property taxes to 1% of a house’s assessed value and limits the amount a home’s taxable value can be increased each year, even if the market value shoots up at a faster clip. Of course, even with some wild fluctuations in the real estate market over the decades, California real estate has significantly appreciated during the last four-plus decades.
As first-time homebuyers know, the joy of being handed the keys to their new home can soon be blunted when they receive their first property tax bill. They’ve scrimped and saved for the down payment, enough to cover the closing costs, and maybe some new furniture, and now they have to write a pretty big check to the county assessor twice a year.
What Prop 19 does for seniors
Now that Prop 19 is officially on the books, older homeowners can transfer their current tax assessment up to three times if they buy a more expensive home anywhere in the state. Even if they are downsizing, including moving to a condo, their new place will almost certainly be more expensive than the current home they bought decades ago. Prop 19 will help them save thousands of dollars a year on property taxes.
Proponents of Prop 19 wanted to secure help for seniors who either wanted or needed to move for health reasons so that they could buy a new residence without being hit with a large property tax bill that could affect their quality of life. That includes Pacific Beach property.
In promoting Prop 19, the California Association of Realtors said senior citizens could continue to enjoy comfortable lifestyles if they could keep a consistent tax basis when selling one home and buying another.
Even elected officials were in favor of Prop 19. Los Angeles County Assessor Jeffrey Prang said senior citizens shouldn’t be penalized when they move into a more manageable home. Removing that disincentive should lead to more movement in the housing market, he said.
“However, we can all agree that seniors shouldn’t feel locked into homes that are simply not a good fit for them anymore,” Prang said in remarks to the media. “This component of Prop 19 is a welcome change.”
Who is adversely affected by Prop 19?
The Howard Jarvis Taxpayers Association argued that it was unfair to remove the property tax break for heirs.
According to analysts, taking away the property tax break for inheritance property is expected to generate more than enough revenue to offset the tax relief offered to older homeowners.
Others benefitting from Prop 19
Before you make a real estate transaction in California, check to see if it will be affected by the provisions in Prop 19.