Prop 19: How to Save on Property Taxes When You Move

If you're a homeowner in the Bay Area, Prop 19 could save you money on your property taxes when you sell your home and buy another.

Prop 19 is a California ballot initiative that went into effect on April 1, 2021. It helps homeowners who are over the age of 55, severely disabled, or victims of wildfire and natural disaster to move to a new home without incurring a property tax hike.

If you are eligible under Prop 19, you can keep your original Prop 13 tax base when moving to a home of equal or lesser value anywhere in California. You can also secure an adjusted tax rate based on your Prop 13 tax base when moving to a more expensive home anywhere in California.

California Prop 13 and Prop 19

Reminder: Prop 13 is why San Francisco Bay Area homeowners who have owned the same property for decades pay significantly less property tax than their newer neighbors.

Thanks to Prop 13, property taxes in California are generally assessed at the time of sale, gift or bequest and raised no more than 2% per year. Since 1978 when Prop 13 was adopted, property values have frequently increased far more than 2% per year, making the initiative a huge tax savings for Californians over the past four decades.

(Back in 2003, Warren Buffet announced that he paid over $14,000 in property tax on his modest $500,000 home in Omaha, Nebraska, and just over $2,000 in property tax on his home in California worth $4M—a rate of 2.9% and 0.056% respectively.)

Now that Prop 19 is in effect, your "locked-in" property tax assessment base of Prop 13 can be transferred from your current home to your next home anywhere in the state. However, this won't apply to every California homeowner. Let's look at who is eligible under Prop 19.

Who Is Eligible Under Prop 19?

Eligibility to transfer the taxable value of a primary residence to a replacement primary residence applies to California homeowners who are:

• Age 55 or over
• Severely disabled
• Or whose homes were destroyed by wildfire or natural disaster

Eligibility also extends, in some cases, to children and grandchildren. Prior to Prop 19, property transfers were exempt from reassessment if the property was to be used by the family member as a principle residence, or if its value was $1M or less. Now under Prop 19, a property is exempt from reassessment if:

• It continues as the family home of the transferee, or is a family farm
• It is being transferred from a parent to child or grandparent to grandchild
• The transfer is completed within one year

However, if the assessed value of said family home is more than $1M over the original taxable value, then the new taxable value will increase. In that case, the new taxable value will be the new assessed value minus $1M.

As always, taxes are complicated, so a disclaimer is in order:

At Vivre Real Estate, we a boutique team of San Francisco Bay Area real estate agents with a proven track record and over 500 five-star client reviews! However, we are not attorneys or tax professionals. If you are wondering about your own eligibility under Prop 19 or considering applying for the tax benefit, please seek the advice of a qualified California real estate attorney or tax advisor.

Prop 19 Tax Benefits

Eligible homeowners in the SF Bay Area (and elsewhere in California) can take advantage of Prop 19 to:

• Keep your original Prop 13 tax base when moving to a home of equal or lesser value anywhere in California
• Secure an adjusted tax rate based on your Prop 13 tax base when moving to a more expensive home anywhere in California
• Transfer your original tax base to a new home up to three times, or up to six times for married couples (if you plan to move that often!)

Wasn't that always the case?

Not quite. Prior to Prop 19, eligible California homeowners could transfer their Prop 13 tax base under Props 60 or 90, but with more restrictions.

You could do so within the same county under Prop 60, or in another county that accepts intercounty tax basis transfers under Prop 90. (In the Bay Area, such counties included only San Mateo, Santa Clara and Alameda.) This was only allowed for new home purchases of equal or lesser value than your current home, and it was allowed only once.

Now under Prop 19, you can transfer your tax base to a new home anywhere in the state, to a property of lesser, equal or greater value, and you can do so up to three times.

In practice, the benefits of Prop 19 may look something like this:

As a Prop 19 eligible homeowner, you sell your current home for $1M. At the time of sale, your assessed home value is $500,000 (thanks to Prop 13). You buy a new home for $1.3M, and the $300,000 difference in sales price is added to your old assessment for a new taxable value of $800,000.

Without Prop 19, your new yearly tax bill would be roughly $15,210. Under Prop 19, your new yearly tax bill would be about $9,360, or a total savings of $5,850 each year in property taxes.

Maximize Your Next Home Sale And Purchase

Prop 19 opens up some interesting opportunities for seniors downsizing to a smaller home, or for those with family members looking to move into the Bay Area. It also benefits Californians who are severely disabled, or those who have been victim of a wildfire or other natural disaster, which is unfortunately all too common these days.

As you prepare to sell your home and buy another in the San Francisco Bay Area or elsewhere in California, be sure to explore the benefits you may be entitled to under Prop 19. It is always a good idea to consult with a qualified tax advisor or real estate attorney.

And when it comes time for you or someone you know to buy or sell a home in San Francisco, we are here to answer any questions and help you make the most of it! Check out our latest articles and keep up with SF Bay Area real estate by signing up to our twice-monthly, never-boring email newsletter. As always, you can contact us any time.