How the Change in State Property Tax Rules Could Impact Your Financial Plan

Photo by Tom Rumble on Unsplash

Proposition 19 is on its way to passing in California by 51.2% (7,486,376 votes). In summary, this proposition:

·       Permits homeowners who are over 55, severely disabled, or whose homes were destroyed by wildfire or disaster, to transfer their primary residence’s property tax base value to a replacement residence of any value, anywhere in the state.

·       Limits tax benefits for certain transfers of real property between family members.

·       Expands tax benefits for transfers of family farms.

·       Allocates most resulting state revenues and savings (if any) to fire protection services and reimbursing local governments for taxation-related change

A home is often the most valuable asset a family has. This proposition passing means that all homeowners who are over 55 (or who meet other qualifications) would be eligible for property tax savings when they move. This has the potential to impact your cash flow during retirement and your decision on whether or not to relocate.

Parents/ grandparents would be able to transfer primary residential properties to their children/ grandchildren without the property's tax assessment resetting to market value. Other types of properties, such as vacation homes and business properties, would also be able to be transferred from parent to child /grandparent to grandchild with the first $1 million exempt from re-assessment when transferred.

"The great majority of older homeowners are middle-income, not rich. Allowing them (as well as disabled homeowners and wildfire or disaster victims) to downsize without suffering a huge property tax hit is a humane policy that helps people retire with much less financial stress. It would also promote fluidity in home sales, increasing the availability of larger homes for families with children and easing the phenomenon of Proposition 13 depressing the real estate free market by trapping empty nesters in homes bigger than they need. Not perfect, but it is good.” From the San Diego Union-Tribune Editorial Board.

This proposition would eliminate the exemption in cases where the child/ grandchild does not use the inherited property as their primary residence, such as using it as a rental house or a second home. Or if the home is used as principal residence but is sold for $1 million more than the property's taxable value, there would be an upward adjustment in assessed value. This might impact how you decide to allocate properties in your will and trust*.  

If you have other questions about how this proposition passing may affect you or your financial plan, you can contact one of our trusted advisors to set up a consultation at info@betawealthgroup.com or call us at 858.207.3377

 *If you do not yet have a will or trust, we highly recommend getting one to save your loved ones from the timely and expensive process of probate, in which the state determines the validity of a will or the course of action if none exists. We recommend the professionals from Trust & Will for a seamless online process. Click here for a limited time 10% discount.