Moving from one house to another within the state will become more attractive for some homebuyers after April 1, due to changes in property tax laws made through Proposition 19. Qualifying buyers will benefit from their property tax assessments becoming portable, allowing a low tax assessment on a previous house to be applied to a higher-priced property.
On Nov. 3, California voters passed Proposition 19, the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act. The act allows qualifying homeowners to sell their old homes and transfer their current property tax rates to a new home purchase, which can result in large yearly savings.
To qualify, applicants must be over 55, severely or permanently disabled, or have lost their home to a governor-declared natural disaster. The new home must be purchased after April 1 and the transfer must be completed within two years of the sale of the home.
Greg Dolan, owner of Shamrock Mortgage in Hollister, said homeowners who are in the process of selling should consider their timing to take advantage of the new act.
“People able to qualify who are going into escrow now should definitely wait until April when Prop 19 goes into effect,” he said. “It will be a huge difference in payments every month, making it easier for people on a fixed income.”
On Feb. 9, the Twin Oaks senior community in Hollister presented a webinar called “Not Your Parents’ Retirement: Financing the ‘New Retirement’ and Prop 19 Update.” Tamara Pow, founding partner at Strategy Law LLP, discussed details of the act.
“For your primary residence, there is something we call portability of property tax basis,” Pow said. “It gives you an opportunity to move because you want to retire or move closer to your children. It lets you transfer your property tax basis to a new house of any value anywhere in the state.”
Pow said the benefits of this for most people would be in keeping their property taxes low. In the case of people moving into a significantly more expensive home, the property tax would increase, but not as much as it would for other homebuyers. The Prop 19 Home Protection Act can be taken advantage of three times in total, with no limit for disaster victims.
Using the example of a home purchased 20 years ago with current property taxes assessed at $2,500 a year, Dolan explained the impact of making taxes portable under Prop 19.
“There are reasons it is going to help you and reasons it is going to help me,” Dolan said. “The main benefit to you is the property tax you are paying for your old home is based on what you bought it for however many years ago. You might be paying $2,500 a year on your old home. But if you are looking at a home in Hollister for $600,000, the property tax is going to be $7,000 a year. Prop 19 will hold your tax to the previous home’s rate rather than the current rate. If you buy an $800,000 home after April, the property tax will be the same as the home you bought 20 years ago for $150,000.”
Dolan said that for a lot of seniors, the old law created a property tax increase which prices seniors out of the market because they are still dealing with a fixed income even if they sell their home. Prop 19 allows them to grandfather in the lower tax rate they paid before.
“The other benefit is that it releases a lot of inventory for the likes of me or whoever,” Dolan said. “When the homeowners got married 20, 30, 40 years ago, they needed that four-bedroom home. Now the kids have moved out and they really only need a two-bedroom home. They want to move into a smaller home and get on with their lives. So now they can sell their houses and move into smaller places affordably.”
Prop 19 also lifts several restrictions on transferred property tax for disaster victims.
“One of the advantages to the new rule is that it is not limited to events that the governor has officially proclaimed as a state of emergency,” said Pow. “Now, any wildfire counts or any other natural event such as an earthquake that the governor declares as a disaster. Also, previously you could only transfer in the 13 counties participating in an intercounty agreement, but the new act allows you to transfer anywhere in the state. It really changes how portable your property tax really was after a disaster.”
Prop 19 also creates a fire response fund to help the state build up resources for fire disasters, and a revenue protection fund, which raises money for counties that suffer a “negative gain” because of decreased property tax revenue.
Implementation of Prop 19 will be subject to additional legislation and regulation. Questions regarding Prop 19 should be directed to the State Board of Equalization.
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