What California Prop 19 Could Mean for Seniors and Their Heirs
If you’re a California senior thinking about downsizing your home or transferring it to a child, Prop 19 could offer tax benefits. Here’s how it works.
California’s “Prop 19,” which took effect on February 16, 2021, introduced benefits for seniors changing their primary residence while also changing the dynamics of intergenerational transfers of property. Here’s a look at what this could mean for you.
Homeowners exemption for seniors aged 55 and older
For homeowners over the age of 55 in California, Prop 19 allows them to transfer the taxable value of their primary residence to a newly purchased or constructed replacement residence of any value, anywhere in the state. The transfer must be done within two years of the sale of the primary residence, and the adjustment claim (Form BOE-19-PB) must be filed with the county assessor where the new property is located within three years of the date of replacement. This benefit is available up to three times during your lifetime.
The base year value of the existing residential property may be transferred to a home of “equal or lesser value.” If the value of the replacement home is greater than the tax basis of the old home, the difference will be added to the transferred base value.
Example: Transferring property tax value to a new residence
Example 1: If the market value of the replacement is less than or equal to the market value of the original, then the taxable value (factored base year value plus inflation adjustments) of the original will transfer to the replacement residence with no adjustment.
Original Taxable Value
Original Market Value
Replacement Market Value
$300,000
$900,000
$700,000
Example 2: The market value of the replacement is more than the market value of the original, then the difference will be added to the transferred value. (This assumes the replacement property is purchased before the original. It the replacement property is purchased after the original, depending on the time period when the replacement was purchased, the amount above five percent (5%) or ten percent (10%) over the original property’s market value is added to the transferred base year value.)
Original Taxable Value
Original Market Value
Replacement Market Value
$300,000
$600,000
$700,000
Primary residence transfers between parent and child
Prop 19 allows the transfer of a family home or family farm between parents and their children without causing a change in value for property tax purposes. This applies to the purchase or transfer of a family home between parents and their children if the property continues as the family home of the child. The child must live in the home as their primary residence within one year of transfer and file (Form BOE-19-P) for the exemption with the country assessor.
There is a limit to the value that can be excluded for a family home or each legal parcel of a family farm. The value limit is equal to the property’s taxable value (factored base year value) at the time of transfer plus $1 million. If the market value exceeds this limit, the difference is added to the taxable value.
Example: Intergenerational transfer of primary residence
At the time of the transfer, a single primary residence has a taxable value of factored base year value (FBYV) of $300,000 and a fair market value of $1,500,000.
1. Calculate the sum of the FBYV plus $1 million:
2. Since the fair market value is greater than the excluded amount, calculate the difference between the fair market value and the excluded amount:
3. Thus, the adjusted base year value is $500,000.
Ask us how Prop 19 impacts you
Prop 19 introduced more flexibility for senior homeowners moving throughout the state while also establishing guidelines when transferring residential property ownership to children. If you’re unsure how to take advantage of these provisions or how they impact your estate plans, please reach out to your Wealth Advisor team.
Source: California State Board of Equalization Fact Sheet, https://www.boe.ca.gov/pdf/pub801.pdf
ABOUT THE AUTHOR
Matthew R. Adams
Matt is a Partner, Wealth Advisor in our San Diego office. Matt joined legacy firm Dowling & Yahnke Wealth Advisors in 2017. He is a CERTIFIED FINANCIAL PLANNER™ professional and holds the Certified Public Accountant (CPA) and Certified Divorce Financial Analyst certifications. Matt completed his undergraduate work at UC Santa Barbara, where he majored in business economics and accounting, graduating cum laude. He was also an intercollegiate men’s volleyball scholar-athlete at UCSB. Prior to joining D&Y, Matt spent 15 years in the financial services industry in various capacities. He started his career as a Certified Public Accountant with Deloitte, a global accounting firm, working in their San Diego, Sydney and London offices. More recently, he was a wealth manager at a San Diego-based independent advisory firm. Matt is a San Diego native. Having grown up in Olivenhain, he now lives in Solana Beach with his wife and their two sets of twins (fraternal girls and identical boys).
