The Flip Side Of Prop 19: Moving Your Property Tax Basis, Repeatedly

When California voters passed Proposition 19 in November of 2020, many questioned why the Real Estate industry supported a law that eviscerated the “parent to child exclusion” (from property tax reassessments) in most cases. Well, like the Stones’ “Satisfaction” and the Beatles’ “Revolution,” the B side of this new law outshined side A. While Prop 19 taketh away from intrafamilial hand-me-downs, it giveth to those wanting to move their existing tax basis, multiple times, from property to property, all around the state.

A historical perspective is helpful to appreciate this major change. Without getting too wonky, before Prop 19 we had Propositions 60 + 90 that allowed property owners to transfer an existing property tax basis, only once per couple and only after one of the spouses reaches age 55, and only for a principal residence, and only when downsizing, and only within the same county or one of 10 counties that allowed reciprocity. Santa Barbara County was the opposite of Hotel California, you could leave any time you wanted but you could never check in. These laws worked for those who had competent real estate counsel plus the right life circumstances, but many more were not ready to downsize at 55+ and wished they could take their tax basis with them on the way up where it mattered even more.

Enter the good side of Prop 19. Since April 1, 2021, property owners can now transfer their tax basis on a primary residence up to three times, all over the state of California, without restrictions on which county they leave or join. There are important limitations discussed below, but it is a tangible benefit you should explore if moving homes, even to new construction.

In addition to now being able to transfer up to three times per couple, and anywhere in the state, homeowners are no longer limited to downsizing. You can take your current property tax basis to a more expensive home than the one you sold. This is new. This is big. But, there is a catch. Anything above the “equal value” (100% if buying before selling, 105% if buying in the first year after selling, and 110% if buying in the second year after selling), is now added to your tax basis. Still, pretty cool.

As ever, an example illustrates the point. In 2023, Harry and Harriett Homeowner sell their Montecito home that they bought in 1990 for $800,000 (for which they now pay $10,000 per year in property taxes). They sell it for $3,500,000 in order to move to a $5,000,000 mansion in Carmel. Before Prop 19’s effective date in April 2021, they would have lost their tax basis unless buying something within Santa Barbara County for equal to, or less than, $3,500,000. Now, however, they can buy a more expensive home and transfer their $10,000 tax basis for the first $3,500,000 (up to $3,850,000 depending on closing date) and then add about $1,500,000 to their valuation for a resulting property tax of approximately $25,000 per year on a $5,000,000 home.

The difference in property taxes for these happy Homeowners, compared to someone buying the same $5 million home without a tax basis transfer, is about $100,000 in property tax savings every four years. And, they (or you) can now do this twice more, in any county in California.

Before taking advantage of the historically high sales prices in today’s still surprisingly hot real estate market, be sure to meet with a competent real estate professional to identify potential property tax savings.

Catch you on the flip side!