Have you been considering upgrading or downgrading your home but are worried about property taxes? Well with the passage of Prop 19, making that move has now become a lot easier and less burdensome on your pocketbook.
Homeowners in our area have experienced an amazing sharp increase in property values. While this is great for their overall wealth it has made moving challenging.
If you bought a home 10 years ago for $700K and that same home is now worth $1.6M that’s great if you sell that home and move out of the area. But what if you wanted to stay in the area and move up to a larger home in the neighborhood. Well, a larger home may be worth $2M, which you could afford if you sold your home, but what about the property taxes.
Under your current home, you are probably paying close to $12K a year, after purchasing a new home for $2M, your new property tax bill would go up to $25K a year.
That right there is why many home owners in our area don’t move, and with the passage of prop. 19 that may change.
Prop 19 Has Passed, and What Does it Change?
With prop 19, home owners 55 and older will be able to transfer the taxable value of their old home to a new home of lessor or equal value and also blend the value of their exiting home with the value of a new, more expensive home they purchase, resulting in property tax savings that could reach thousands of dollars a year.
But it’s not all just property tax savings, they closed a loophole where children who inherit their parents’ houses will no longer receive a property tax break if they intend to keep it as a second home or rent it out.
Here is How it Currently Works - Prop 60
Typically when Californians buy a new home, their property taxes shoot way up. That’s because property taxes here are based mostly on the value of your home when you purchased it — not the current market value. Baby Boomers who bought that home down the street right after Woodstock are paying much less in property taxes than the couple who bought an identical bungalow last year.
Currently, couples over 55 can transfer their tax basis to a home that is equal or lessor value, but they can only do this once, and they can only do this in their own county or the 9 other participating counties in the state (See my post on prop 60-90).
This prop would allow people to buy a new house anywhere in the state and retain relatively low property taxes, so they will no longer be limited to their current counties and the other 9 participating counties. They will also be able to buy a more expensive home and blend their current taxes with the purchase.
This they hope will motivate people to sell their homes and free up inventory. Due to the sharp increases in property values and the lagging property tax rolls, many people are reluctant to move for fear of higher property taxes. This is the solution to free these homeowners of that fear.
Lastly, this proposition eliminates a loophole where a child who inherits with the intention of renting the home will keep the same tax basis as their parents.
So now if you inherit a home in Calfornia in order to keep the artificially low property tax bill, you will need to live in the home as your primary residence.
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Additional Details of Propostion 19
In addition to older Homeowners who will now receive a property tax benefit when they buy a more expensive home anywhere in the state. Homeowners with disabilities will be able to do the same, and victims of wildfires and other natural disasters will be able to do so after their home is damaged.
In the past you were only able to take advantage of the benefits of Prop 60 once, under the new propostion you will be able to benefit up to three times.
So What Could This Mean For You?
In general this is going to result in more sales and more inventory. Removing this property tax issue from home owners will allow them to move easier with less concern.
In other states where home values have not shot up so dramatically, home owners move more frequently, both upgrading and downgrading residences. Expect this to happen more frequently in our area.
Also sellers can now move any where in the state and transfer their tax basis. Areas on the coast like Santa Cruz county or Monterey county, will now become viable relocation destinations.
Ultimately this will increase inventory, make home buying easier, and may soften home values in our area.
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