California property laws continue to evolve, creating both opportunities and tax planning considerations for homeowners and families alike. Proposition “Prop” 19, for instance, changed the rules governing certain property tax transfers, affecting homeowners who relocate within California as well as families planning to transfer real estate from one generation to the next.

As one of California’s premier tax planning and financial strategy firms, we closely monitor changes to federal tax law and the state’s property tax rules. That ongoing attention allows us to incorporate new planning opportunities into each client’s personalized tax-saving and approach to wealth-building while helping them avoid costly surprises.

In this SWC blog post, we discuss two parts of Prop. 19 that may affect your property taxes:

• Base year value transfers for qualifying homeowners who relocate within California
• Intergenerational transfer exclusions for qualifying family homes or family farms

Understanding California Prop 19

California voters approved Prop 19 on Nov. 3, 2020. Senate Bill 539 later established procedures for its intergenerational exclusions and base-year value transfers, which is just a fancy way of saying a set the rules for property tax transfer and family inheritance provisions.

As a result of the new law, beginning April 1, 2021, qualifying California homeowners could sell their principal residence and transfer its taxable value to a replacement principal residence anywhere in California. A homeowner may also qualify based on age or a severe and permanent disability. Separate rules cover qualifying victims of wildfire or a governor-declared disaster.

Understanding Taxable Value: Taxable value simply means the property’s base year value plus inflationary adjustments. You may also see this amount called the factored base year value.

For example, suppose you’ve owned a home in San Diego for the last 20 years and its taxable value has reached $400,000. Assume the County Assessor determines that the home’s current market value equals $1 million.

If you sell that home and buy another principal residence anywhere in California with an equal or lower market value, you may transfer the $400,000 taxable value to the home you bought. In other words, your property tax would generally begin with the transferred $400,000 taxable value rather than the replacement home’s full market value.

A higher-priced home may also qualify.

Suppose the replacement home has a market value of $1.3 million and you purchase it before selling the original home. The difference in market value equals $300,000: Continue reading… Continue reading… Continue reading…