Exterior view of the State Capitol Building in Sacramento, California

Here's what 55+ homeowners in California need to know about Proposition 19.

Homeowners in California voted to approve Proposition 19, also known as “The Home Protection Act for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act” on November 3rd, 2020. With the approval of this new law, many active adults ages 55 and up may benefit and be able to pass some of those benefits on to their children.

Many homeowners over 55 may be wondering: “What is proposition 19, and how does it affect me?” Essentially, California’s Prop 19 changes property tax benefits for seniors, but those over 55 should take note because it may change the way those affected parties plan their estates for the future.

According to John Bray, Regional Sales Manager for 55places.com:

"For those 55+, Prop 19 opens up doors to Californians that didn't exist before. Those wanting to move and take advantage of property tax savings can now look across the entire state. So if they're wanting to move to be closer to kids and grandkids, or for better weather, or simply to enjoy retirement in a location they've been dreaming about, Prop 19 gives people that freedom while keeping money in their wallet.  I think just as important, in the past buyers would often agonize over the decision on where they should move to because they could only take advantage of the tax savings one time. Now, Prop 19 allows buyers to move three times while keeping their low tax base. So they will no longer feel stuck living somewhere if they decide that life events or a desire is calling them to move someplace else within the state."

The new law, which took effect on Feb. 16, 2021, affects people in two distinct ways. Firstly, Prop 19 changes how property taxes are calculated for those 55+, and secondly, it changes how property is transferred to heirs.

Change in Transfer of Property Tax Assessments

A small wooden house beside a stack of gold coins

This transfer of property taxes is a portion of Prop 19 that will take effect on April 1, 2021.

Prior to the passing of Prop 19, a homeowner over 55 could transfer their existing property taxes when they sold their home and moved to a new one. This benefit was allowed only once during a lifetime. However, to take advantage of this benefit, the new home needed to be in the same county as the old home. (Or, the new home needed to be in one of the California counties that allowed inter-county transfers: Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolomne, and Ventura county.)

Additionally, the purchase price of the new home needed to be equal to or less than the sale price of the old home. Currently, under the new law, adults ages 55 and up are able to transfer their property tax assessments from their sold home to a newly purchased home anywhere in California, regardless of value. If the value of the new home is higher than the old home, the new home’s taxable value will be equal to the old home’s value plus “the amount by which the new home increased in value. This means that the difference in the market value between the older home and the newer more expensive home will be added to the old home’s tax base,” according to Contra Costa Senior Legal Services.

This transfer of property taxes is a portion of Prop 19 that will take effect on April 1, 2021. Any homeowner who wishes to apply for this benefit must file a claim with the county assessor.

In addition to the transfer of equal property tax rates, 55+ homeowners may take advantage of this benefit not just once but up to three times under the new law. This is great news for active adults who see themselves moving more than once during their retirement.

According to spassessor.org:

“Proposition 19 is constitutional amendment that limits people who inherit family properties from keeping the low property tax base unless they use the home as their primary residence, but it also allows homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster to transfer their assessed value of their primary home to a newly purchased or newly constructed replacement primary residence up to three times.” 

Change in Transfer of Property to Children

A retired couple signing a document bequeathing their property to their children

Prop 19 brings both good and perhaps bad news for active adult homeowners.

The way property is transferred from parents to children has also been affected by the passing of Prop 19, and many children may now not see the benefits they would have under previous laws.

Previously, a parent or legal guardian could transfer any value principle residence to a child, and that property would keep its original tax assessment. The home would not be re-assessed upon transfer from parent or guardian to a child.

Now, under Prop 19, a property's tax value will be re-assessed when that property is transferred to a child, except if the child lives in the property and makes it their primary residence. To be clear, a child must live in an inherited property in order to avoid the property tax being assessed and increasing when they inherit the property.

Even when a child lives in the inherited property, “Prop 19 imposes a cap of $1,000,000 on the exclusion, meaning that the home will be partially reassessed, but not to the level of the home’s full market value.” (This portion of the law will take effect on Feb. 16, 2021.) 

In essence, Prop 19 brings both good and perhaps bad news for active adult homeowners. The good news is that they'll be able to move residences up to three times in their lifetime, all while keeping their current property tax rate. The bad news—their children may not be able to keep that low tax rate as they once would have in the past.