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California’s Prop 19 allows homeowners who are age 55 or older to transfer the “taxable value” of their principal residence to a replacement property anywhere in the state. The law became effective April 21, 2021. Homeowners can utilize this benefit up to three times.
The point, of course, is to transfer the taxable value of a current home to a replacement home without paying property tax based on the full price of the replacement property. Here’s how it works.
· The original home must be the seller’s principal residence.
· If the replacement home costs the same or less than sales price of the original, then the property tax on the new home is the same as on the original.
· If the replacement home costs more than original sold for, the difference between those values is added to the assessed value of the original for transfer purposes.
Here is an example of each scenario:
Selling and Buying a Less Expensive Home
Spouses buy a home in Alameda, California in 1980 for $200,000. The assessed value is about $400,000. The property taxes are about $5,000 a year.
Today the house is worth $1.2M (market value)
Spouses sell the Alameda (or anywhere in CA) home and buy a new home in Livermore to be closer to their daughter for $700,000
Their new home in Livermore will have the same $400,000 assessed value as the home they sold and they continue to pay just $5,000 per year in property tax.
Transferring their assessment will save them about $3,750 in property taxes a year.
Selling and Buying a More Expensive Home
Spouses buy a home in Alameda in 1980 for $200,000. The assessed value is about $400,000. The property taxes are about $5,000 a year.
Today the house is worth $1.2M (market value)
After April 1, 2021, spouses sell the Alameda home and buy a home in San Diego to be closer to their daughter for $1,700,000.
Their new home on San Diego (or anywhere in CA) will have an assessed value of $900,000 and they will pay about $11,250 per year in property tax rather than $21,250.
How does the math work? Like this: original home sells for $1,200,000. The replacement home costs $1,700,000. The Assessed Value of the original is $400,000. The transferred tax base will be $400,000 plus $500,000 (the difference between $1.7 and $1.2M) or $900,000, saving $10,000 a year in property taxes.
In conclusion, Prop 19 presents a golden opportunity for California homeowners aged 55 and over to unlock substantial property tax savings.
