Prop 19 Tax Changes for California Seniors and Their Heirs

Wednesday Mar 17, 2021

It’s tax time and one of the most important tax law changes in California for seniors starts this year because of Prop 19.

Approved by voters in November 2020, Prop 19 is a relatively complex law that expands property tax transfers. It also places certain limitations on tax benefits related to inherited property.

Before Prop 19, California homeowners 55 and older or who are severely disabled could transfer their property tax basis only once from one county to another. The counties had to agree on the transfer and the new property had to be of essentially equal or lesser value.

Under Prop 19, California homeowners 55 and older, wildfire victims or severely disabled residents can transfer their tax basis up to three times. The transfer can be anywhere in California and to a property of any value. It is important to note that there are new limitations to the property tax benefits when a residence is transferred by inheritance.

The property tax transfer provisions take effect beginning April 1, 2021.

Frequently Asked Questions:

How does Prop 19 change the parent-to-child and grandparent-to-grandchild exemption?

After Prop 19 passed, it eliminated the parent-to-child and grandparent-to-grandchild exemption in cases where property is not used as their principal residence. An example would be a property that is used as a rental or a second home.

Also, when the inherited property is used as the recipient’s principal residence but is sold for $1 million more than the property’s taxable value, an upward adjustment in assessed value would occur.

What happens to rental/vacation properties being transferred to children/grandchildren?

The exemption for inherited vacation and rental properties will be eliminated going forward.  Those properties will be re-assessed at market value when the ownership changes.

When will Prop 19 be applicable?

The property tax transfer provisions take effect beginning April 1, 2021. The parent to child transfer provisions took effect on February 16, 2021. Prop 19 is not retroactive. If a transfer happened before that date, the child does not need to live in the home or claim it as a primary residence.

What does Prop 19 mean for homeowners over 55 with a single property looking to downsize?

They will be able to move anywhere in California and carry their property tax base if they buy a property of equal or lesser value.

Can an older homeowner buy a more expensive property and keep an advantageous assessment?

Yes. Under old rules, families had to downsize to preserve their status. They can now trade up. The new, pricier home will come with a higher assessment, but not at market value. Any amount above the sales price of their prior residence is added to the transferred value.

 Please note: We are not attorneys and are not giving legal advice.  Sources: CA Board of Equalization, California Association of Realtors

Contact us for more information on seniors and real estate – we love helping seniors!