Since 1986, Prop 60 has allowed the one-time transfer of the base year taxable value of a
primary residence to a replacement residence. This program was available to homeowners
aged 55+ and certain individuals with qualifying disabilities.
With the passing of Prop 19 in late 2020, Prop 60 and the previous transfer of base rules have
been expanded to the benefit of retirement age California residents, disabled Californians, and
now to those displaced by natural disasters. The best part is you can use it up to 3 times!
Who Qualifies for Prop 19?
As before, any homeowner aged 55 years and older, or anyone with a “disability that results in
a functional limitation as to employment or substantially limits one or more major
life activities of that person” (Tax Code 74.3) is able to use the tax basis transfer. Under Prop 60,
homeowners who fit these requirements were only able to use the transfer one time, resulting
in owners who used the transfer being reluctant to move again, fearing higher tax rates. With
Prop 19, qualifying individuals can now use the transfer up to three times, no longer “locking”
homeowners into any single property.
With the increase in wildfire devastated communities in recent years, Prop 19 has opened the
tax base transfer to victims who have had their homes significantly damaged by natural
disaster. Unlike the individuals mentioned earlier, victims of natural disasters are not limited in
the number of times they can use the transfer, meaning homeowners are not penalized for
choosing areas that may be more prone to wildfires than others.
Previously, homeowners were restricted to replacement properties either within their county,
or had a select number of intercounty options. Prop 19 has now lifted those restrictions,
meaning that a homeowner can take advantage of the transferable tax basis anywhere in
California. This is a boon for those looking to move out of crowded downtown areas into more
Replacement Home Value
Prop 60 only allowed homeowners to use the base tax transfer on replacement properties of
equal or lesser value, severely limiting their options in an ever-appreciating California market.
Prop 19 removes that limitation, allowing buyers to use the tax base transfer on a replacement
regardless of its price. The only tax increase a homeowner will be responsible for is the
difference between the replacement property value and the original property value. For
example, a homeowner decides to sell their primary residence, which is assessed at a $200k
taxable value, for $500k. They then purchase a replacement home for $600k using a tax base
transfer. The taxable value of their new home would be the transferred $200k plus the $100k
difference between homes, resulting in a $300k assessed value of the replacement home.
While Prop 19 may seem like an improvement in every aspect over Prop 60, there are some
new provisions that result in negative changes for individuals looking to pass their homes on to
heirs after death. Under Prop 60, property obtained by children or grandchildren through
inheritance also received the exclusion for tax reassessment, providing a valuable tax shield for
those with expensive homes.
Prop 19 has done away with this tax shield, however, meaning that those children and
grandchildren will have a tax reassessment on their inherited homes at their current value.
There are exceptions to this rule: if an heir decides to live in the home as a primary residence,
they will still receive the exclusion for tax reassessment, only facing an upward adjustment if
the home is valued over $1mm greater than the original tax basis at the time of transfer. This
new rule change also does not apply to farms passed down to heirs.
The Bottom Line
Depending on your situation, the revisions to tax base transfers in Prop 19 can be a marked
improvement over Prop 60, giving you more options in choosing a new home without losing the
shield of your valuable property tax base. As with all tax matters and plans, consulting a tax
professional is imperative before moving forward with the execution of a tax base transfer.