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What is Proposition 19?
Proposition 19 (takes effect 2/15/2021) recently passed and has supplanted Proposition 13, so what does that mean? Let's briefly review Proposition 13 to see what's changing.
In a nutshell: Proposition 13 allowed children who inherited real property from their parents to keep the same low tax basis that their parent's benefitted from.
Since the assessed value of real property was capped at 2% annually, the tax benefits equate to a large sum of money since the fair market value of real estate in California has FAR exceeded the annual adjustment cap of 2% via Proposition 13 in 1978 .
Once Proposition 19 takes effect, children who inherit property from their parents must move in to the inherited property and make it their primary residence in order to keep the low tax basis enjoyed by their parents, AND only $1mm of the re assessed value will be exempt from the new property tax basis.
Without being too long winded, here are the main pros and cons of both Proposition 13 and Proposition 19.
Proposition 13
Pros:
- Capped the sales tax at 1% of the sale price of the home.
- Limited future property tax values at a maximum of 2% a year. (including commercial properties – see Proposition 15)
- Allow the lower property tax basis on inherited homes to be transferred without requiring that the new owner live in the property as a primary residence.
- Keeps neighborhoods stabilized so that people are not driven out by tax increases that become unaffordable.
Cons:
- If a seniors (55+) or disabled person wants to sell their property or move, they can only transfer their lower property tax basis to a new home IF:
- The new home is worth less than your previous one
- Is within the same county or available select counties
- Can only take advantage of this tax transfer once in their lifetime
- Would not have the ability to benefit from the potential pros of Proposition 19
Proposition 19
Pros:
- If a seniors (55+), disabled person, or victims of wildfire
wants to sell their current residence or move, they can now
transfer their lower property tax basis to a new home with the following flexibilities:
- They can now transfer their lower property tax basis to a home that is worth more than their previous home and would pay additional taxes on the difference of the two values.
- They can now transfer their lower tax basis to a new home anywhere in the State of California.
- They can now take advantage of this tax transfer up to 3 times in their lifetime.
- Example: If a person mentioned above has a home that has a taxable value of $1mm and sells it for $3mm, and they buy a new home in California for $3mm or less, they can transfer the $1mm taxable value to the new home.
- If the same person in the Example decides to buy a more expensive home for $4mm, than their new properties taxable value would be $2mm ($1mm original taxable value + ($4mm - $3mm)).
Cons:
- The lower tax basis can still be inherited, but the caveat is that the heir/successor can only take advantage of the lower property tax basis if they move into or already live in the home as a primary residence (This does not affect farms) (The inherited property tax value is limited to a $1mm exclusion).
- Example: If a home has a taxable value of $3mm, but it is now worth $4mm, the difference being a $1mm reassessed value. When the property is gifted, the taxable value of the property will be $3mm (($3mm - $1mm exclusion) + $1mm reassessed value)
- The additional cost basis incurred by home owners that are renting out their investment properties may pass that thru to their tenants by increasing rents, but of course, there are stipulations to rent increases that must be adhered to.
FAQ:
How long does the child have to move in to the property?
They must move in as soon as possible, and they have 1 year to file the "Parent Child Exclusion Form" & "Homeowner Exemption Form".
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James Kil is a licensed professional who is experienced in arranging for real estate transactions, including but not limited to fostering buyer and seller relationships, as well as representing one or both parties during negotiations. During these negotiations, James Kil is perfectly capable of communicating with each involved party and navigating their interests. For the benefit of both parties, James Kil focuses on profitability for sellers and a fruitful, comfortable buying experience for buyers. Of course, James Kil does this all without alienating either nor jeopardizing their assets. At the end of the day, James Kil strives to make clients sell their homes at a sizable profit and let buyers attain their dream homes.
James Kil
REALTOR®
DRE# 02120566
James Kil
REALTOR®
DRE# 02120566
NAVIGATION
LEAVE IT TO ME
PROPERTY ORGANIZER
James Kil
REALTOR®
DRE# 02120566
NAVIGATION
LEAVE IT TO ME
NAVIGATION
LEAVE IT TO ME
PROPERTY ORGANIZER
James is a native San Franciscan and has been in the industry since 2012. James' expertise is grounded in risk-averse assessments and analysis. He specialized in junior mortgage loans before honing his abilities in risk mitigation before becoming a mortgage underwriter for Wells Fargo. He eventually found himself in a position as a leading mortgage/asset expert as a Capital Markets Associate on the secondary markets. His background allows him to comfortably tune in to the ebbs and flows of the ever-changing market and provide uniquely catered advice to anyone. He has built an extensive team of partners, e.g. stagers, tilers, contractors, painters, floor guys, stagers, movers, cleaners, and lenders.
The property information herein is derived from various sources that may include, but not be limited to, county records and the Multiple Listing Service, and it may include approximations. Although the information is believed to be accurate, it is not warranted and you should not rely upon it without personal verification. Not intended as a solicitation if your property is already listed by another broker. Affiliated real estate agents are independent contractor sales associates, not employees. ©2023 Coldwell Banker. All Rights Reserved. Coldwell Banker and the Coldwell Banker logos are trademarks of Coldwell Banker Real Estate LLC. The Coldwell Banker® System is comprised of company owned offices which are owned by a subsidiary of Anywhere Advisors LLC and franchised offices which are independently owned and operated. The Coldwell Banker System fully supports the principles of the Fair Housing Act and the Equal Opportunity Act.
James Kil | All Rights Reserved
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