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How Prop 19 Can Help You Save on Property Taxes

How Prop 19 Can Help You Save on Property Taxes

Recently, a client called me to discuss listing their Roseville, CA home of 19 years and buying a new construction home, also in Roseville. Aside from the typical market value questions, one of their biggest question marks had to do with California’s relatively new Proposition 19 and how it affects their property taxes.

Prop 19 was enacted on April 1, 2021, and has changed the landscape for many homeowners across the state. While Prop 19 covers a couple of different changes to property taxation, my clients were interested in the part of the act that deals with "Base Year Value Transfers."

You may be asking what that means. In California, it can mean saving thousands of dollars in property taxes. So, what is it, and which California homeowners can benefit?

What is a Base Year Value Transfer?

To understand fully, let’s go back to the passing of California’s Proposition 13, which was adopted in 1978. 

Prop 13 mandates that properties across the state be taxed at a rate of one percent and requires that properties be assessed at market value at the time of sale, which is considered the "Base Year Value." Additionally, it allows yearly assessment increases of no more than two percent per year until the next sale. 

Back then, this was a huge win for California homeowners and it’s even more significant given California property values today. 

If you bought a home in California 19 years ago, when home values were much lower than they are today, that Base Year Value is incredibly valuable. For many, giving up that lower tax base doesn’t make sense, making some Californians left to feel "stuck." Prop 19's "Base Year Value Transfer" provision means you might not need to stay in your old home forever. 

Under Prop 19, when a California homeowner sells their primary residence, the Prop 13 protected Base Year Value can be moved to a replacement home anywhere within the state—but it’s not for everybody. The homeowner has to meet certain criteria to qualify for the transfer.

How do you know if you qualify?

The homeowner needs to fall into at least one of three categories: 

  1. 55 or older

  2. severely disabled, or 

  3. the victim of a Governor-declared disaster where 50% or more of the home sustained damage. 

My clients fit into the 55+ crowd, but had questions about other requirements:

  • Can the replacement property be higher in value than the original property? Yes, if the replacement property's purchase price is higher than the original property's sale price, the difference in value is taxed at one percent and added to the transferred amount from the original property.

  • How many times can the Base Year Value be transferred? A qualifying transfer can be made up to 3 times. However, disaster victims have an unlimited number of transfers.

  • Can the replacement home be purchased prior to the sale of the original home? Yes, and at the time of filing the claim, the claimant must own and occupy the replacement property as a principal residence. You pay tax on the full value of the replacement home until the original home is sold and the Base Year Value is transferred.

  • Is there an expiration date on the ability to complete the Base Year Value Transfer? Yes, the transfer must be completed within two years of the first event whether that be selling or purchasing.

  • What if a second owner does not meet the qualifications? Only one of the claimants needs to meet one of the qualifications.

How do I apply for a Base Year Value Transfer?

A claimant must file a claim with the County Assessor in the county where the replacement property is located. The claim must be filed within three years of the purchase of the replacement property, or, if new construction, the date of completion. 

The ins and outs of Proposition 19 are complicated and what we've presented here only scratches the surface. We recommend talking to your County Assessor's office for more precise information about your specific situation. You can also see more information on the State Board of Equalization - Implementation of Proposition 19:  Base Year Value Transfers webpage.