Prop 19 California 2020 pros and cons

California voters narrowly passed with 51% approval Proposition 19, impacting property taxes. Prop. 19 is a two-part initiative. 

The first part of prop 19 eases the tax burden on 55 and over homeowners, the severely disabled, and those whose home has been damaged or lost by wildfire or natural disaster.

Prop 19 allows these homeowners to transfer the taxable value of their primary residence to a replacement anywhere in the state, regardless of the replacement value (with some adjustments, the excess fair market value of the new home will be added to the assessed value of the old home to arrive at the new assessed value for the new home), within two years of the sale of the home and up to three times.

For example: A qualifying homeowner who owns a home with a taxable value of $200,000 and a market value of $600,000 pays roughly $2,000 a year in property taxes now. If the replacement property costs $700,000 the homeowner would pay $3,000 a year in property taxes underprop. 19. Without prop. 19, that homeowner would pay $7,000 in taxes.

This is a huge win for homeowners looking to downsize, or needing to move for health reasons or to improve their quality of life. 

The second part of prop 19 affects those who inherit property. Under Prop 19. Children who inherit property as a second home or investment will see a large increase in the property tax on those inherited properties.

Prior to prop. 19, parents could pass their primary residence and up to an additional $1,000,000 of real property to their children without a property tax increase. On top of that, the exclusion was based on the assessed value, not the market value.

With the passing of prop. 19 real estate owners are likely to reassess their future plans to buy, sell, or hold their real property.

Prior to the passing of Prop 19, there wasn’t much motivation to sell your home and real estate which hasn’t been great for the housing market. The lack of available housing coupled with the pent up demand and current low-interest rates has kept home prices skyrocketing, making it difficult for first time home buyers and families to purchase. With the higher property taxes, keeping inherited homes as rental properties or second homes will likely become unprofitable spurring real estate owners to sell. As inventory increases due prices will stabilize allowing more Californians to become homeowners.