Q: Can you explain Proposition 19, passed by California voters in November 2020? It has a lot of moving parts. What is it about, and how does it affect California real estate?
A: On November 3, 2020, California voters narrowly voted to approve Proposition 19. This proposition was named “The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disaster Act.”
The proposition has numerous components and is currently being digested by the populace. Was it clearly understood by the California voters?
The California Association of Realtors (CAR) backed Proposition 19. CAR’s historic involvement dates to Propositions 60 and 90. Proposition 60 was passed by California voters in 1986. It allowed property owners 55 and older to sell their primary residence within their county and transfer their low property tax base to a new purchase. It encouraged older and long-time homeowners to sell their greatly appreciated house and keep their property tax savings.
Proposition 90 was passed in 1988 as an adjunct to Proposition 60. It allowed homeowners to sell their home in one county and transfer their low tax base to another California county. There was, however, a serious flaw in Proposition 90. California counties had the option to opt out of accepting other counties’ tax base transfers. Santa Barbara County, for example, declined to accept low tax base transfers. In fact, out of the 58 counties in California, only 10 accepted low property tax transfers. They were not minor counties: Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolomne, and Ventura all accepted the tax base transfers.
CAR tried to persuade the other 48 counties to accept low tax base transfers. In 2018, CAR backed Proposition 5, which would have allowed homeowners 55 and older to transfer their tax base to any county in California, any number of times they wanted to do so. Prop. 5 was labeled by the opposition as a gross business grab by the Realtors and was defeated. Proposition 19 allows seniors to transfer their low property tax base on their primary residence to any county in California. Furthermore, they can do this transfer up to three times in their lifetime.
The compromise CAR made to get Proposition 19 passed was a large tax increase to the heirs of some homeowners. Proposition 19 was promoted as saving money for homeowners 55 and older when they transferred their tax basis. Did the voters understand they were also sacrificing their real estate heirs in the process?
Over the decades, hundreds of thousands of Californians have inherited their parents’ primary residence and kept their parents’ low tax basis. Proposition 19 states the only way the inherited homes can maintain their low tax basis is if one of the heirs lives on the property. If the property becomes a rental, current value property taxes must be paid by the heirs. It is anticipated Proposition 19 will add $2 billion in new taxes to the state annually.
Proposition 19 is great for seniors who want to sell their home and keep their low property tax basis, but perhaps not so good for the adult children of these seniors.
Marsha Gray, DRE #012102130, NMLS#1982164, has been a real estate broker in Santa Barbara for more than 20 years. She works at Allyn & Associates, real estate services and lending. To read more Q&A articles, visit MarshaGraySBhomes.com. She will research and answer all questions submitted. Contact Marsha at (805) 252-7093 or MarshaGraySB@gmail.com.