California voters passed Prop 19 in November of 2020 and it went into effect in February of 2021. Prop 19, which is also known as “The Home Protection Act for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act,” has many purposes, but the main goal is to prevent people who inherit property from also inheriting the property’s lower taxes unless they make the property their primary residence.
Prop 19 also affects seniors over the age of 55. Read on to learn more about the effects of Prop 19 and what you should do if you’re a senior.
What Prop 19 Means for Those Over 55?
Prop 19 has two main effects on those over the age of 55. First, it affects their tax benefits when it comes to homeownership. Second, since Prop 19 impacts how tax benefits are applied after inheritance, it also affects how seniors may want to plan their estate so that their children may also get those tax benefits.
Prop 19 and Property Taxes for People 55+
Before Prop 19, people over 55 had limited options when it came to moving and keeping their property tax benefits. They could only move once after the age of 55 and keep their tax benefits. Additionally, their new home had to be in the same county or it had to be in a county that allowed transfers between counties.
For homeowners, these stipulations put a lot of pressure to make the right decision when choosing a new home and where they wanted to live. If they needed to move again, they could no longer transfer their property taxes. They’d have to pay the current taxes assessed for a new home.
Prop 19 made two significant changes. First, homeowners could move to any county in California. This change gives homeowners a lot more freedom when it comes to choosing their new residence.
The other big change allows people over 55 to move up to three times and still transfer their property taxes. They no longer have as much pressure to make sure they’re buying their final home. As long as they don’t exceed three transfers, they won’t be subject to current tax assessments.
One final stipulation regarding the purchase price of the new home; Before Prop 19, the new home had to be of equal or lesser value than the original home. Prop 19 allows the new home to be any price, either greater or less than the original home. If the price increases, the original tax assessment will be transferred and will be taxed under the current assessment.
For example, if your previous home was $410,000 and your new home is $500,000 you’ll only pay current taxes on the increase, which would be $90,000.
Prop 19 and Inheritance Concerns for People 55+
Prop 19 has also made changes regarding inheritance. As people over 55 make plans to leave their home to their children, grandchildren or others, they’ll need to take these changes into consideration.
In the past, parents could leave their homes to their children and in addition to the home, the children would also inherit the original tax assessment.
Prop 19 put some limits on inherited property. Now, if the inheritor wishes to keep the original tax assessment, they must live in the home as their primary residence. If the property is kept for any other reason, the property will be reassessed and current taxes will apply.
If the inheritor chooses the property as their primary residence, there are still some limitations. Most importantly, Prop 19 has put a cap on the value. Any house valued under $1,000,000 can keep the original tax assessment. However, homes over $1,000,000 will have a partial reassessment on any value over $1,000,000.
As you plan your estate, you’ll need to take the new Prop 19 limitations into consideration. If one of your children or grandchildren is situated to move into your home, it may be best to leave it to them.
If you have questions about Prop 19 and how it may affect you please call us at 916-299-6800 or fill out the form below.
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