Prop 19 – How This Will Affect CA Property Owners

Paul Miloe, CRPS®

Paul Prop 19

In November, CA voters passed Prop 19.  This could have implications for all who own real estate and could have major effects on families with commercial buildings, vacation homes, or multi-unit buildings who seek to pass ownership at death.

On the plus side, beginning April 1, 2021, Prop 19 will permit anyone over age 55, anyone who is severely disabled, or who has been a victim of a wildfire/natural disaster/hazardous waste contamination to take the tax basis from their current residence to a new residence anywhere within the state and do so up to 3x during their lifetime.  It no longer matters if the property is within the same county or has a value that is less than, equal, or more than the current residence.  If the new property has a higher value, the differential between the sale price of the existing property is subtracted from the new purchase price, and that amount is added to the original basis carried over to the new property.  Otherwise, the basis on the new property would be the lesser of purchase price on the new residence or the basis carried over.  A new residence must be purchased within 2 years following the sale of the current residence to qualify for this tax treatment.  The existing law limited the transfer to a property of equal or lesser value and generally within the same county.

On the flipside, Prop 19 has placed limitations on the ability to carryforward basis within a family.  Under the prior Prop 58, families had more flexibility on the ability to transfer tax basis.  Beginning February 16, 2021, all inherited or transferred property (family home or farm) will be reassessed when passed within family (parent to child; grandparent to grandchild).  The one exception to the reassessment is available in the case where the child/grandchild will use the property as their principal residence.  In that case, one of two situations will occur.  If the new property has a fair market value that is less than $1M over its assessed value, then the property will keep its original basis.  By contrast, if the new property has a value that is more than $1M above the assessed value, the exclusion is capped at the taxable value of the property at the time of transfer plus $1M.

Note: For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

Paul Miloe

CRPS®

Paul Miloe has been actively working as a financial advisor with Albitz/Miloe & Associates, Inc. since 1996. He graduated from University of California, Santa Barbara in 1994 with a Bachelor of Science degree. Paul is a Chartered Retirement Plans SpecialistSM. His focus centers on personal and retirement planning, life insurance, annuities, college savings plans, and senior issues, including long-term care insurance. In addition to his role as CCO of our firm, Paul is also a Branch Manager for Cetera Advisor Networks, LLC (member FINRA/SIPC). Paul, and his wife, Mary, are lifelong residents of the South Bay, and along with their two children, and are active in their community via sports, school, and community service.

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