Proposition 19 passed within the state of California by a vote of 51% to 49%, and will take effect on April 1st, 2021, but what exactly is Prop 19, and how does it affect you and how much you pay in property taxes?
To understand why Prop 19 was ever introduced in the first place, we need to take a ride in the way back machine to a simpler time.
The year was 1978. The US was groovin’ to Saturday Night Fever. A grumpy orange cat, who loves lasagna and hates Mondays was first introduced to the world. But most importantly, well, for the sake of this video, Prop 13 was enacted in the state of California.
Prop 13 was introduced as a way to keep property taxes down, even if property values within California went way up. According to the proposition, taxes could only increase at a maximum of two percent per year. This was great for homeowners within California, as property values have increased significantly since 1978, but it did come with its own problem. You see, the longer a person stayed in their home, the sweeter this deal became. This kept seniors and long time homeowners from wanting to move, because they would likely pay much higher property taxes if they went and bought a new house.
This was a bit of a problem, so California passed Prop 60 in 1986, and Prop 90 in 1988, which allowed homeowners over the age of 55 to transfer their tax base to a replacement home. However, this only applies to a home of equal or lesser value, to a home within the same county or participating counties and can only be done once in a lifetime. Prop 19 changes all of that.
Instead of only applying to homeowners over the age of 55, it now includes the disabled, and victims of natural disasters. Your lower property tax base can now be transferred to a home of lesser, equal, or greater value, the latter where you only pay additional taxes on the difference in value between the sales price of your old home, and the purchase price of your new home. You can move to any home within the state of California. And you can do this up to three times in your lifetime.
Unfortunately, every tax cut must be paired with a tax hike in order to offset the loss in revenue. So of course, Prop 19 does come coupled with a tax increase, and this tax hike is all about inheritance.
Prior to Prop 19, when you die, and you leave your property to your children or grandchildren, they were able to keep your lower tax base. For those inheriting a house, this was a sweet deal, as your heirs were able to pay taxes based on the previous generations assessed property value. Prop 19 will raise property taxes by ending this tax break in many, but not all circumstances.
The Prop 19 tax increase is directed more toward wealthy families who own larger properties, or many properties. Under Prop 19, you are still allowed to keep the inherited tax base if you inherit a property and decide to live in it. It also exempts farms. However, if you inherit a bunch of rental properties, commercial property, or a home that you have no desire to live in, then the property tax on those properties WILL increase.
So what’s the point of this tax increase? Well, analysts believe that the increase in property taxes on these inherited properties will increase tax revenue within the state of California by hundreds of millions of dollars per year. Most of that money will go towards fire protection, something California cannot get enough of these days, but some of it will also go directly to local governments.