Prop 19 Property Tax Changes & Actions to Take
Prop 19 Property Tax Changes & Actions to Take
California passed Prop 19 last month in November, eking out a 51% majority. While the margin may be thin, the effect on homeowners is huge. The new proposition changes property tax rules for buying, selling, and inheriting houses. This especially impacts older homeowners, older homebuyers, and relatives inheriting properties that already face property tax liability. Prop 19 is terrific for older people looking to buy a home, but it puts pressure on younger people who want to get into real estate. There’s good and bad news.
First, the bad news: inheriting property is about to get pricey. Prop 19 scales back “intergenerational transfer” protections, meaning relatives inheriting homes or rental properties after February 15, 2020 will be slapped with increased property taxes.
Usually, property taxes in intergenerational transfers are based on the original purchase price, not the home’s market value. Before Prop 19, a mysteriously rich grandfather could transfer his home and up to a million dollars of assessed value to a lucky grandchild without the property tax bill changing. But starting February, property taxes will be assessed based on the current market value unless the property is both parties’ primary residence. Grandad’s home is sure to be pricier in 2021 than when he bought it in 1970. His grandkid’s property tax liability will spike under Prop 19, unless both grandkid and Grandad both live there. Prop 19 increases property taxes on these types of generational hand-offs, making lucky heirs less lucky.
The good news? Baby boomers get a tax break. Californians age 55+, Californians with disabilities, and Californians affected by wildfires all get property tax breaks when buying new homes. Before Prop 19, the mysteriously rich grandfather would see his property taxes spike when buying a new house. He probably would have downsized if he moved at all, buying a smaller home to avoid huge tax increases. But starting February, older people get reusable (up to 3 times!) tax breaks they can use anywhere in California. If a senior moves into a home that’s at least as small as their old home, their taxable value stays the same.
When seniors move to a bigger property, taxes will be assessed based on the difference between the price of the new home and the sale price of the old home, plus their original assessment. This makes it much cheaper for the boomer grandfather to buy a new home. He could even trade up. For example, if his original assessed value was $400k on his 2-million-dollar home and he plans to move into a 3-million-dollar home, Prop 19 would make his new assessment 1.4 million. Sure, this is still higher, it’s far below what he’d usually pay.
It’s too early to say how the real estate market will react to Prop 19 long-term. The increased tax revenue from inheritances will fund badly needed relief programs, but it may also hurt family rental businesses already struggling with frozen rent payments. But in the short-term, the California Association of Realtors is convinced Prop 19 will increase home sales. They spent millions on advertising in the hopes that Proposition-19 would make 2021 such a good year to buy real estate that sales would reach healthy levels, even in the pandemic. Only time will tell how Prop 19 changes California real estate, but there are important steps homeowners and aspiring homeowners can take now to prepare for the fallout.
1. Transfer family properties now, not later
At the time of publication, it might already be too late. Property transfers take about 3 months on average, putting most readers past Prop 19’s February 16 start date. But if you’re gung ho about giving a home to a family member without a tax hike, you may be able to squeeze in the transfer with expedited paperwork and a good attorney.
2. Seniors, take advantage of the tax breaks
If you’re disabled, above 55, or were affected by wildfires/natural disasters, Prop 19 incentivizes you to buy a new home in California. If you’re eager to downsize, escape your zip code, or even just be closer to family, this tax break makes moving cheaper. Plus the tax break can be used 3 times, meaning you could flip 3 houses without your property taxes skyrocketing. If you have experience with flipping or just want to buy in a zip code where the property values are rising, Prop 19 makes 2021 a great year to move.
3. Under 55, take advantage of low prices
If you’re too young to get the tax break, you can still benefit from the tax break. Prop 19 encourages seniors to sell because buying a new place is profitable, not selling. Prop 19 is all about the difference between sale prices of the old and new homes, meaning a thin profit on a home sale could mean less property taxes later. Many seniors are eager to get out of the cities and take advantage of this tax break, meaning they may not drive a very hard bargain. Getting the highest possible sale price could be an afterthought with both Covid and Prop 19 pressuring them to move, meaning plenty of homes could be sold below market value soon. Look out for new listings.
4. Research, research, research
Realtor associations already spent millions of dollars trying to educate people about Prop 19, they probably don’t see their first victory lap as a good time to give crash courses. You’ll want to do your research and do it fast, at least while Prop 19 is still sending out its first shockwave. Settle on the kind of property you’re looking for and then find a knowledgeable agent.
5. Be prepared to jump
Both senior sellers and younger buyers should get ready to make a big move, both physical and financial. This means getting your finances, career, and personal life ready as you begin to search for a home, which can be draining even when there isn’t a pandemic and new propositions shocking the state. While jumping at a low-cost home sale might seem like the right thing to do, it’s really only feasible after a great deal of research and preparation. Make sure you’re in a place where you’re not only able to jump when the perfect home goes on sale, but that it makes financial sense to do so.
Be prepared to jump through bureaucratic hoops as well. California’s lockdowns and social distancing will almost certainly stretch into 2021. At the very least they’ll still be in place as Prop 19 goes into effect in February, meaning buyers should be prepared for virtual tours, screenings, lengthy wait times, and lots of masks. While social distancing can complicate buying, these measures also socially distance your competition from great prices. Open house crowds have vanished and waitlists have disappeared. While traumatic, Covid might thin both competition and thin sale margins as California practically gives seniors money for selling their homes. Prop 19 could make the coming months a once-in-a-lifetime opportunity to buy your dream home at a low price, making 2021 almost as memorable as 2020.
STILL HAVE QUESTIONS ? CALL (415) 854-2224 OR EMAIL ME AT CRYSTLE@CKWPROPERTIES.COM TO GET ANSWERS TO ALL OF YOUR QUESTIONS!
LINKS TO OTHER BLOG ARTICLES
QUICK GUIDE TO BUYING A HOUSE IN SAN FRANCISCO
THINGS YOU CAN DO WHILE QUARANTINED AT HOME
HOW TO BUY A HOME DURING COVID-19
GOVERNOR GAVIN NEWSOM’S EXECUTIVE ORDER EFFECTS ON REAL ESTATE
TO BUY OR NOT TO BUY IN SAN FRANCISCO DURING SHELTER-IN-PLACE
WHAT THE CARES ACT MEANS FOR YOU (CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY ACT)
CONSTRUCTION UPDATES FOR SHELTER-IN-PLACE
CONFIRMING WITH THE IRS WHERE TO SEND YOUR STIMULS $$$
SAN FRANCISCO: IS NOW A GOOD TIME TO SELL A HOUSE?
HOW SAN FRANCISCO REAL ESTATE GOT SO EXPENSIVE AND WHY SF REAL ESTATE VALUES HOLD
HOW TO CHOOSE A REALTOR TO SELL YOUR INVESTMENT PROPERTY IN SAN FRANCISCO: 5 ESSENTIAL TIPS
ABOUT OUR FOUNDER, CRYSTLE WONG
As the CEO of a San Francisco founded, global tech startup, Crystle understands from experience what it takes to succeed. Her real estate experience spans from successfully managing multiple properties over the last 10+ years including residential, commercial, and mixed-use, as well as her time spent actively investing in flipping properties, tax liens, tax deeds, and other property types. As a native born and raised in San Francisco, you can trust that you’re in good hands of a local who can help you navigate the micro neighborhoods of San Francisco. Crystle invests in relationships and you can count on her to walk with you through the process of buying or selling your property.
You might ask yourself, “What does a tech startup have to do with real estate?”
Good question! Everything about Crystle exudes intention. Her ultimate goal is to grow her tech company so that she can utilize its philanthropic arm to fund micro-housing for the homeless in partnership with key, long standing and successful social services organizations with a successful track record of housing and reintegrating those at risk back in her hometown of San Francisco. Real Estate gives her the ability to network and learn about developing land to purchase in the future to develop the micro housing. Her time serving on boards for these non profits gives her the knowledge of what these organizations really need to be able to get more people off the streets for good.
The same cornerstones that drive success in her tech company are the same cornerstones that make her the best real estate agent to work with: honesty, transparency, integrity, and a relationship- focused mindset toward life.
Crystle was born and raised in San Francisco’s Inner Richmond district and continues to choose to establish her future life in San Francisco as well. She is a woman of her word. She not only financially supports several not-for-profits, but also regularly serves in her community helping the homeless, youth, and those in poverty.
In her spare time, she is an active and current member of the Board of Directors of Lutheran Social Services of Northern California, the APA Heritage Foundation Committee of San Francisco, and volunteer for Mobilize Love. She has previously and faithfully served on the Board of Directors for Zion Lutheran Church and School of San Francisco, the Board of Directors for Designing a Difference, the Board of Directors for APAPA San Francisco, a member of the Friends of Smuin Ballet, and as a Co-Chair for the Princess Project.