Take Your Property Tax with You
Do you dream of moving closer to the grandkids in retirement? Or maybe you’re done with the snow and crave some beachside living? Before 2020, the potential for increased property taxes might have held you back. Thanks to California Proposition 19, you have less to worry about.
Proposition 19 changed the way officials calculate property taxes. This can be a boon in an age of rapidly increasing home prices since you can take your old property tax assessment with you to the new residence. However, the new rules can affect your estate plan too.
Read this article for what you need to know about California’s new property tax rules.
Proposition 19 and Homebuyers
Before voters approved Proposition 19, you could retain your prior property tax assessment if you bought a home:
With the same or lesser value as your old home
Within the same county as your old home or one of the 10 areas allowing inter-county transfers (Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura)
You could also retain the old assessment just once in your lifetime.
With Proposition 19, qualifying homeowners can now transfer their existing tax base to a new home three times. County lines no longer restrict you—you can apply the transfer anywhere in the Golden State.
You must be one of the following to take advantage of Proposition 19:
Age 55 or older
Severely disabled
A victim of a wildfire or other natural disaster
If your new home is more expensive than the one you sold, your taxable base will be a blend of the old and new—meaning assessors will take the amount by which the new home increased in value and add it to your old tax base. This can save you thousands of dollars over pre-Prop. 19 rules. Consider this example from the Los Angeles Times:
A qualifying homeowner who owns a home with a taxable value of $200,000 that is worth $600,000 on the market would pay roughly $2,200 in property taxes now. If the homeowner moves to a $700,000 house, the homeowner would pay $3,300 a year in property taxes under Proposition 19. Without the initiative, the same homeowner would pay $7,700 annually at the new home.
You may find that the new rules help keep your budget sustainable in a time of escalating home prices and inflation. They may also help you move to areas you might have scratched off the list because of the painful property tax bill you would have incurred.
Proposition 19 and Your Estate Plan
The new rules might affect your estate plans if you want to leave your home to a child or grandchild.
Previously, your heir would “inherit” the low property tax base with the home. That rule still applies if your child or grandchild makes the property their primary residence and the value is less than $1 million. Any amount over that will be taxed at the current market value. And if they don’t make the home their primary residence, they will pay the full current tax value.
Given the new rules, you may want to talk with your child or grandchild so that they can decide how they will handle the inherited home and make the appropriate preparations. You may also want to speak with a financial advisor or estate planning attorney to consider other inheritance strategies if the tax will be a burden on your heirs.
Final Thoughts
Proposition 19 can add flexibility and freedom for California’s seniors who want to move in retirement. But it also presents potential estate planning issues you may want to talk through with a financial professional or lawyer. Our fiduciary wealth management firm has been working with our Sacramento area clients to help incorporate the new rules into their financial planning and legacy goals.
Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.