Interested to learn more about Prop 19? We’re not CPA’s, so please discuss any tax matters with your tax advisor. We are summarizing our interpretation of prop 19 and how it might impact local homeowners, buyers and sellers.
Prop 19 created an opportunity for homeowners 55 and up, severely disabled, or victims of natural disasters to transfer the tax basis of their property to a replacement property across California. There are different scenarios where this would be of great benefit to the homeowner.
Before Prop 19, homeowners with large houses on the Monterey Peninsula who were looking to downsize were often deterred from selling because they had been in their homes a very long time, and their taxes were low. Even if they decide to buy a smaller property of half the value of their own, their taxes would have been much more expensive than where they were living. Now, with Prop 19 they would be able to sell their residence, and transfer their tax basis to the new home. If the new home is more valuable than the one they are selling, they would add the difference in sale price from the current residence and the replacement home and be taxed on that number in addition to their previous property tax.
One important component to this transaction is that the replacement property must be purchased within two years of the sale of their current residence or vice versa: the current residence would be sold within two years of buying the replacement home.
What does this mean for buyers and sellers?
It’s no secret California has been experiencing a shortage of available housing. Buyers are frustrated because they want to take advantage of excellent interest rates, but with multiple offers being so common it can be a frustrating market. We believe prop 19 will encourage homeowners who have been on the fence about selling to take advantage of this incentive, and more properties will come on the market as a result, creating more opportunities for qualified buyers. If more properties start coming on the market, there will be more options for buyers to choose from, which would help establish a more balanced market.