Proposition 19 - "The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act".

We've seen quite a few complaints about Proposition 19 made online by Silicon Valley residents who've inherited property. People thought they were voting to help victims of natural disasters but have found that it affects all inherited property, often adversely, and it affects people 55+ moving to a new home. It is now law and you should understand it to benefit as much as possible from your choices.

Seminar Video - Proposition 19, co-hosted by John C. Martin, Esq.

Inherited Property

Propositions 58/193 previously provided exclusions from reassessment for property tax when property was transfered from a parent to child or from a grandparent to grandchild. Rules:

1. For principal residence of transferor, no value limit
2. For other real property - lifetime limit of $1,000,000 of factored base year value
3. Grandparent to grandchild - parents of grandchild must be deceased
4. File claim within 3 years or before transfer to third party

Proposition 19 rules:

1. For principal residence of transferor AND transferee, current taxable value + $1,000,000 (biennially adjusted) - CHANGED
2. No exclusion for other real property, only principal residence - CHANGED
3. Grandparent to grandchild - parents of grandchild must be deceased
4. File for homeowners' exemption within 1 year of transfer, file claim for exclusion within 3 years or before transfer to third party

Base Year Value Transfer for Persons 55+ or Disabled

Propositions 60/90/110 previously provided exclusions when selling your home and buying a new home. Rules:

1. Applies only for principal residence
2. Purchase or build new residence within 2 years of sale
3. New property located in same county or possibly intercounty ordinance (10 counties)
4. New property "equal or lesser value"
   1. 100% if replacement purchased/newly built prior to sale
   2. 105% if replacement purchased/newly built in first year after sale
   3. 110% if replacement purchased/newly built in second year after sale
5. One transfer (except if first time for age, then subsequent disability could provide 2nd)

Proposition 19 rules:

1. Applies only for principal residence (no change)
2. Purchase or build new residence within 2 years of sale (no change)
3. Anywhere in California - CHANGED
4. New property can be any value - amount above "equal or lessor" is added to transferred value - CHANGED
   1. 100% if replacement purchased/newly built prior to sale
   2. 105% if replacement purchased/newly built in first year after sale
   3. 110% if replacement purchased/newly built in second year after sale
5. Can be done 3 times.

Base Year Value Transfer - Intracounty Disaster Relief

Proposition 50 previously provided exclusions. Rules:

1. Any type of property
2. Purchase or build within 5 years of disaster
3. Within same county
4. Any value, value above 120% is added to transferred value
5. Disaster for which the Governor proclaims a state of emergency

Proposition 19 rules:

1. Principal residence - CHANGED
2. Purchase or build new residence within 2 years - CHANGED
3. Anywhere in California - CHANGED
4. Any value - amount above "equal or lessor" is added to transferred value - CHANGED
   1. 100% if replacement purchased/newly built prior to sale (no change)
   2. 105% if replacement purchased/newly built in first year after sale
   3. 110% if replacement purchased/newly built in second year after sale
5. Wildfire, as defined, or natural disaster as declared by the Governor - CHANGED

Simplified Summary Of Propositon 19 Changes

Inherited property is much more likely to be assigned a higher property tax basis. There are more opportunities for people 55+ to move without incurring higher property taxes. Disaster replacement now only applies to a principal residence but "wildfire" replacement does not require state of emergency proclamation.

I've read that future interpretations and revisions will help define Proposition 19. I've also read that if there are multiple children inheriting a primary residence only one of the children has to use it as her/his primary residence. Similar as to when you buy a new home and receive a supplemental property tax assessment possibly months later, inherited property may also result in a supplemental property tax assessment months later (may need a reserve when settling estate).

NOTE: Property tax laws are state laws and do not apply when moving to a new state.

To see more details you can view the official California State Board Of Equalization Proposition 19 Fact Sheet.

Proposition 19 Complicates The Transfer Of Property To Your Heirs, Planning Minimizes Taxes

In the video above John C. Martin talks about how the property owned by a large company is not reassessed when stock (ownership) is sold and bought. The reassessment happens when a controlling interest in the property is transferred. With informed legal advice you can transfer your property without having it reassessed, but any number of mistakes can trigger a reassessment. Proposition 19 has created a hazard for the average homeowner who wishes to create a multigenerational home. This new hazard may lead you to create an even more lasting family legacy with the proper estate planning.

Estate Planning, Trusts, and Taxes

You can learn more about estate planning, trusts, probate, and taxes from the seminar video that was also co-hosted by John.

Our thanks to:

John C. Martin, Esq.
johncmartinlaw.com
650-329-9500

636 Middlefield Road
Palo Alto, CA 94301