Plenty of information is circulating about the impact of Prop 19. Many homeowners are struggling to understand how it might impact their future real estate plans. Here are clear-cut answers the most common questions I’ve received from my clients. I hope this information is helpful when you’re ready to think about selling your home.
What is Prop 19?
Starting April 1, 2021, Prop 19 allows homeowners who are 55 years of age or older, severely disabled or whose home has been substantially damaged by wildfire or natural disaster to transfer the taxable value of their primary residence to a replacement primary residence anywhere in the state, (1) regardless of the value of your replacement primary residence (but with adjustments if replacement has a greater value), (2) within two years of the sale of your original home, and (3) up to three times (or as often as needed for those whose houses were destroyed by fire).
How does Prop 19 change the rules on tax basis “portability”?
The prior rule limited this exemption to a one-time transfer within the same county (Prop 60) or between certain counties (Prop 90) and only if the replacement property was of "equal or lesser value."
What happens if the value of my replacement home is equal to or less than the value of my original home?
The taxable value of your original home may be transferred and become the taxable value of your replacement home.
If my new home is of greater value, how is my new taxable value calculated?
The new taxable value is calculated by adding the difference between the full cash value of your replacement home and your original home to the tax value of your original home. Let’s look at example:
Full cash value is $1m
Taxable value is $300,000
Full cash value is $1.5m
Taxable value of is: $300,000 + ($1.5m - $1m) = $800,000
Can my new home be purchased before I sell my original home?
Does Prop 19 affect the rules on intergenerational transfers to my children or grandchildren?
Yes. It limits the exemption to those properties where your original home continues to be used as a family home by your child or grandchild transferee. If so, the taxable value will remain the same, subject to some upward adjustments if the property value, at the time of transfer, is more than $1M over the original tax basis.
If you have unanswered questions about Prop 19, please call me. My team and I are at your service: 408-748-4040.