What is Proposition 19?
Prop 19 is a new law that went into effect in California as of April of this year. It allows homeowners over age 55 to keep a better tax rate when they sell one house and buy another.
If you are 55 or older, or severely disabled, or if you’ve been a victim of natural disaster or wildfire, you would qualify for Prop 19.
You do need to speak to your CPA or Financial Advisor to understand the details. However, I am going to give you a rough overview of how Prop 19 works here in California so that you can understand it.
When you buy a property your property tax is based on the purchase price and is approximately 1.25% of the purchase price. We do have something called Proposition 13 which says that your property tax cannot go up by more than 2% per year. That’s pretty amazing because there are other states that can go up as much as 10% per year.
If you fall into a qualifying category and you decide to sell your house and buy a new house, you will still benefit from your old property tax rate. So how does it work? For example, let’s say your current property tax assessed value is $500,000. This is based on what you initially paid and the increase in value over the years. You decide you want to sell your house for a big gain and you decide to sell it for $1M.
You want to buy a new house for $2M. Your property tax, if you fall into the qualifying categories of Prop 19, your property tax will not be based on $2M. Under Prop 19 your new tax amount is calculated by subtracting the $1M you sold your old house for from the $2M you paid for the new home plus the assessed value of the sold property which was $500,000. So your new tax is going to be based on $1.5M, not the $2M purchase price. You’re immediately seeing the tax savings.
I am not a tax advisor, I am just giving you some guidelines, so you need to speak to your financial advisor. But please give me a call. I am happy to sit down with you and go over your options for selling and buying at the same time. Please call me at 858-345-0685
Thanks so much for watching, I look forward to hearing from you soon.
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Shirin Rezania Ramos | 858.345.0685 | www.shirinramos.com | Compass, DRE 0203379