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How California Prop 19’s property tax law can save you thousands

I voted for Proposition 19 and was excited for my clients when it passed last November.

Prop 19 aims to help those 55 years and older or those who lost their homes due to wildfires. It will also help communities to generate much-needed revenue for schools and fire districts. There is a clause about intergenerational property transfers to children and grandchildren that I won’t address in this blog.

Beginning April 1, 2021, if you sell your home in any county in California and want to relocate to Sonoma County, you can transfer your tax base from your primary residence to your new home. Previously, proposition 60 and 90 allowed the ‘equal or lesser value’ rule; however under Prop 19, you can purchase equal, lesser and now greater value. Some rules still apply if you are buying a home for more than the home you sold. Under Prop 60 and 90, only 11 counties would agree to participate in intercounty transfers and now all 58 counties in California will participate.This new tax law is excellent news!

Official clarification is pending on those who sold their home before April 1, 2021, as to whether they can take advantage of the benefits this proposition offers. California Association of Realtors takes the position that the final ruling on this should be favorable. If this is the case, you will have two years from the sale of your primary residence to purchase a new property to transfer and protect your previous home's tax base. This has the potential of saving the homeowner thousands of dollars a year. How much could this amount to in savings? Let’s take a closer look.

For example, we need to consider the median effective property tax rate in Sonoma County, which is 0.60% of property value. I sold my client’s home in San Francisco for $2.2 million, which they owned for over 30-years; they were paying $980 per year for property taxes. They were about to purchase a home in Santa Rosa for $670,000 and would have had to pay $4,020 per year in property taxes. With Prop 19, they can take that tax base payment of $980 and apply it to their new home. That is a savings of $91,200 over the next 30 years!

Old tax base cost $980 x 30 years = $29,400

New home tax base cost $670,000 x 0.60% x 30 years = $120,600

Prop 19 Savings $120,000 - $29,400 = $91,200

This senior couple, who sold their home in San Francisco, has chosen to hold off purchasing a new home in hopes that they can take advantage of Proposition 19’s tax benefits. Remember that this goes into effect on April 1, 2021. If you are looking to buy a home in Sonoma County and want to take advantage of Proposition 19, give Elia Hutchins a call.

(Note: For transactions that closed before April 1, 2021, and you want to take advantage of Prop 19 tax benefits, consult with a qualified California Real Estate Attorney or tax advisor.)

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