michelle January 19, 2021
In short, Prop 19 affects California homeowners, inheritors, firefighters, and local governments. California homeowners may now transfer their tax base and move into a new home, but inheritors will face new liabilities on properties they receive from parents and grandparents. On the other hand, the California State Controller must deposit 75 percent of the calculated revenue to the Fire Response Fund as well as 15 percent to the County Revenue Protection Fund.
Most California homeowners can transfer the tax basis of a sold primary residence to a replacement primary residence up to three times. (On the other hand, for those homeowners whose homes have been destroyed or substantially fire-damaged, these transfers are unlimited.) Indeed, the tax base remains the same if the replacement home is of equal or lesser value. These transfers must occur within a two-year period, and homeowners may purchase their new residence before their current residence sells.
In these cases, the new tase base is:
[value of new home – value of old home] + [old tax base] = [new tax base]
Let’s say that a homeowner with a tax assessment of $800,000 on their house sells for $1,200,000, and then moves to a home worth $1.5 million. So here, the new tax base is the difference in value ($400,000) plus the original home’s tax assessment ($800,000), which adds up to $1,200,000.
As long as the property is still used as a primary residence, inheritors can retain the existing tax base. After that, inheritors may be subject to some upward adjustments if the new property value is more than $1M over the original tax basis. (In addition, family farms are exempt from these restrictions.)
Above all, Proposition 19 will go into full effect on April 1, 2021. But to clarify, the family transfer rules will take effect on February 16, 2021.
This is still up for interpretation, but here is the perspective from the California Association of Realtors:
“Although we believe that the tax benefits under Proposition 19 apply to transactions where either the sale or purchase of a primary residence takes place before April 1, 2021, as long as the subsequent sale or purchase takes place within two years and on or after April 1, 2021, others have taken the position that both the sale and purchase must occur on or after April 1st, 2021. C.A.R. will seek official clarification of this issue.”
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