In November of 2020, California voters approved Proposition 19, a measure that would let homeowners aged 55 and up purchase a new home but retain the property tax level they were paying in the previous home. It also caps the amount of inherited real estate wealth children can benefit from before the property taxes of an inherited home could be increased through re-assessment. That second tenet has in particular met with some controversy and confusion. We sat down with Los Angeles County Assessor Jeff Prang to discuss Proposition 19 and get a better handle on it.
You can watch the full interview here: https://www.youtube.com/watch?v=lgMU3gCc84Y
Todd Flora, Publisher, Westside Voice (TF): Mr. Assessor, thank you for joining me today. I want to talk today about Proposition 19, passed in 2020. Can you remind our readers what Proposition 19 was about and what it changed?
Assessor Jeff Prang (JP): Sure. Prop 19 was a Constitutional Amendment that was adopted in November, 2020. It made some changes to Prop 13 as it related to two items. One is base year transfer, and the other one deals with inheritance transfer issues. First, let me talk about the base year transfer. Prop 19 allows homeowners who are 55 years or older, severely disabled, or the victim of a natural disaster, to sell their homes and purchase a new one without being reassessed for tax purposes. It expands the previous law by allowing qualified homeowners to buy a home, anywhere in the state. The previous law only allowed it to be done in a few counties. It allows you to transfer that tax base three times – the previous law only allowed you to do it once – and it allows you to transfer that base to a home of any value. The previous law only allowed you to transfer it to a home of equal or lesser value. Although, as a caveat, if you decide to transfer your base year to a home of greater value, there will be a property tax adjustment. Not 100 percent – you’ll still be able to transfer the assessed value of your current home to the value of a new home, and then anything over that, that exceeds that value, would be assessed at market rate. It’s a little complicated.
The second component of Prop 19 – a lot of people didn’t know about this component because they didn’t really talk about it – deals with family inheritance. Under the previous law, you could inherit your parent’s property, and that property could be of any value, and you would not be reassessed. You would pay the same [property] taxes as your parents. Additionally, you could inherit up to a million dollars in other property such as a rental, and that first million dollars in value was not reassessed. Prop 19 puts some restrictions on family inheritance. So now, the only property you can inherit from your parents and receive a tax advantage is their primary residence. If they own a rental property that’s going to be reassessed at market value, and you’ll have to pay the new fair market tax rate. In order to inherit your parent’s property and the tax rate, another condition exists: you must live in the home. So, you have to occupy your parent’s home in order to qualify. You also have to file a document called the Homeowner’s Exemption. That must be filed within one year in order to qualify. And then there is a cap on how much value of that home that you can inherit with the preferential tax base. The rule of thumb is, if the home is worth a million dollars or less, you can inherit your parent’s home, move into it, and your taxes will stay the same. If it’s over a million dollars, the first million will be capped at your parent’s rate, and the value over a million dollars will be reassessed at market value. Which is a bit of a challenge in L.A. because over 50 communities have a median sales price that exceeds a million dollars, and I think the median sales price county-wide is about $850,000 dollars.
TF: Thank you. Well, I think you’ve answered a few of my questions but I want to go through all of them, and if we repeat a little bit, it certainly can’t hurt our readers. So, I remember voting ‘Yes’ on Prop 19 and I did so with my in-laws in mind. They were nearing 80 years of age at the time and still live in a two-story home that they’ve been in since 1972. I thought it would save them on their property taxes if they every relocated to a single-story house as they age. Was I thinking about Prop 19 correctly?
JP: That’s correct, I think that’s one of the benefits of it. What we call the Parent to Child Transfer – there was a previous law, now there’s the new law, Prop 19 – was always about giving seniors the opportunity to move, or to downsize, without being penalized with an increase in taxes based on the new, typically higher market value of the home that they’re purchasing. They can still do that. They can transfer their tax base to the new home.
TF: Let’s say my wife and I recently sold our home and are currently in escrow to purchase a new home. How would I go about transferring the base year value to the new house?
JP: First, you have to be 55 years or older
TF: Ok, a few years to go.
JP: Well, if you’re not 55, you don’t qualify. You’re going to pay the new market value for that new home. If you qualify for Prop 19, then you’re going to file an application, which you can download online at our website, which is https://assessor.lacounty.gov/Prop19. It’s going to ask you some basic questions, you submit that, and if you qualify, you’re going to be able to transfer that tax base to your new home.
And, that transactions of selling your home and buying your new home have to happen within 24 months.
TF: Ah, ok. So you’ve got two years to do it.
JP: Just as an aside, if you decide to purchase the replacement home right now, but let’s say you wait 18 months to sell the other one? You still qualify, but you are going to receive what’s called a supplemental tax bill for the increase in the value of the new home. You’ll get a refund on that once you’ve sold the other home, but you could get a pretty substantial tax base while you’re waiting for that transaction to complete.
TF: Well, that may be answering my next question. So, now let’s say I’m a wealthy person, and I’ve already been able to buy my home before selling my current one. Can I still claim the base year value for whatever new home I end up buying? I think you answered that?
JP: You qualify because you’ve purchased a new home but you’re not able to apply for Prop 19 until you’ve sold the other one. You have to sell that within two years, and typically – let’s say you bought your house in January, but you don’t sell your current home until next January. Well, come this fall, when property tax bills go out, you’re going to get a bill based on the current market value of the home you just bought; which may be considerably higher than the taxes on the home that you’re going to sell next year. You’ll be responsible for those taxes until you’ve completed the Prop 19 process of buying and selling the home. Then you’ll be able to apply for a refund and get that tax money back.
TF: Yeah, it certainly incentivizes you to sell that current home fairly quickly.
JP: You want those transactions to be fairly close so you don’t have to deal with that supplemental tax bill.
TF: And again, I think you’ve answered this one, but how long do I have to transfer the base value to a new home? And is there any requirements on how long I must live in a home before selling and claiming base value?
JP: There’s no requirement on how long you live [in the home]. You can transfer that property value three times. And actually, you can transfer it three times, and your wife can. So, between the two of you, you can transfer those values six times. There’s not a limit on how long you can live in it. On the parent to child transfer, though, if you inherit your parent’s property, and you move into it so you can take advantage of their tax rate, that is in perpetuity. You only get the tax base as long as you or another qualified child occupies the home.
TF: Again, I think we’re answering questions a question ahead, but is there a limit on the number of transfers I can make? For example, if I move twice in my later years, could I utilize the transfer on both occasions? I think you said three times.
JP: Yes, three times. If you’re married, six times.
TF: Ok, very good. That’s pretty generous. Now, what happens if I’m downsizing and the value of the new home is less than the one I’m selling?
JP: That’s the most beneficial piece of Prop 19, and it mirrors the law that existed previously. We have to compare apples to apples. When we look at these transactions, we’re looking at the current market value of the home that you’re selling and the current market value of the home that you’re buying. For instance, if you bought your home in the year 2000 for $100,000, and it’s now worth $500,000, and you want to sell that home and buy a home that’s worth less, that’s worth $400,000, you’re going to be able to transfer that $100,000 tax base – which is what you’re paying on your current home – to your new one. But if you buy a home that’s less than your assessed value, then you’re going to get an even bigger reduction.
TF: Yeah, when my parents moved in their 60s, they downsized the size of the home, but the new condo that they bought was actually more expensive than the house they were living in. So it was a downsizing, but the value was up because they lived in the previous home for so many years.
JP: This is a point that really confuses a lot of people – when we talk about the value of a home. When you purchase a home, we assess the value at its current market value – what is it worth on the market at the time that you purchased it. That immediately becomes the assessed value. Now, assessed value almost immediately becomes less than the market value because market values are almost always going up in a good economy. Assessed values only increase two percent a year. So again I’ll use the example: if you purchased your home in 2000 for $100,000, and you can sell it today for a million, your tax base is still based on that $100,000 of assessed value. When you’re transferring your home values from your current home to a new one, we only look at market value. We look at the current market value of the home that you bought in 2000, which may be a million dollars, and the home that you’re going to buy, which may be more than or less than a million dollars. And that’s how we determine how to apply that exemption. It’s very unlikely that you purchased a home in 2000, and that value exceeds the market value of the home that you’re buying. It can be a little bit confusing I know.
TF: Now, let’s go back to the inherited homes. I know there was some concern that children that inherit a parent’s home upon their death have no real incentive to occupy that home, and would be under financial strain unless they sell. Is that correct? Explain the parent-child exclusion to us.
JP: Yeah, there’s a lot of moving parts as relates to this. The proponents of Prop 19 talked about a lot of examples of the uber-rich people that had inherited – they talked about the family of Lloyd Bridges, the actor, and his sons Jeff and Beau Bridges. They had purchased a home on the beach in Malibu many, many, many years ago, and the tax base was really quite low. But the home over the decades had increased in value into the tens of millions. And so when Lloyd Bridges died, his children did not move into the home, they rented it on AirBnB. And they’re renting it for $10-20,000 per month, and a lot of people thought that was an unfair advantage that the rich could create a tax-free, or very low tax, income stream. So Prop 19 came up with the measure that you must live in the home in order to take advantage of it.
This was not something that was as commonly discussed during the campaign as the base year transfer. What we have now is people inheriting their parent’s home – it’s the treasured home that they’d like to keep in the family – some of them already have other homes; they don’t find themselves able to move into that home, and in those cases, the property would be reassessed at market value, and in some cases those families aren’t going to be able to afford those homes because they’re not going to be able to afford the increase in taxes. We also found some consternation in what one might call emerging demographic communities where there was a lot of poverty in past generations, and a lot of these families, just now, are putting together some generational wealth to pass on to their children, and they feel that Proposition 19 puts them at an unfair disadvantage compared to people who were taking advantage of the tax benefits for many generations.
Prop 19 does reduce the value of family inheritance. You can only take advantage of the taxes on your parent’s primary residence and you need to live there.
TF: Well now, this wasn’t in my original set of questions for you, but I have to ask as you say that, is there a chance that Prop 19 may be altered by the legislature or at the ballot?
JP: Well, I’ll tell you quite candidly that I was frustrated by Prop 19 as it relates to family inheritance because I think Prop 19’s ability to be passed would have been compromised if people understood that it was going to affect their family inheritance. I don’t think people understood that, and I know that because I speak to thousands of people about this throughout the course of the year and there’s a lot of anger with this component. And I think people should make themselves informed about ballot measures. We know that they don’t, and they vote oftentimes on superficial elements, then we get these policies that may not have been exactly what we wanted.
The Howard Jarvis Taxpayer’s Association did circulate petitions last year to try and get the family inheritance component repealed, and I think they might be making another effort this year, or next year, to deal with that inheritance component.
TF: Ok, but it would have to be done at the ballot rather than by the legislature?
JP: Yeah, it would have to be done by voter initiative.
TF: Got it, got it. Now with the strong storms we’ve experienced recently, I know many people may have suffered serious damage to their homes. I know Proposition 19 was written with folks who have lost their homes to disasters also in mind. Can you tell us how the measure works for people whose homes have been destroyed?
JP: Actually, that’s not totally accurate. Prop 19 doesn’t really deal with disasters, at least not in any significant way. The way disasters are dealt with we call “misfortune and calamity.” If your property is damaged – either totally damaged or partially damaged – you may be entitled to property tax relief. There’s a form on our website, again it’s called misfortune and calamity, if 50 percent of your building is damaged, we’ll assess that and we’ll reduce the assessed value of the property and therefore the property taxes until the property gets repaired. A couple of qualifications though: One, there has to be a minimum of $10,000 worth of damage, and you have just a couple of years to repair the damage.
This is where Prop 19 comes into effect – if your property was damaged and you don’t want to rebuild there, you can transfer your tax base to a new property.
TF: That’s a helpful clarification, thank you. That’s kind of all of my planned questions. I just want to offer you the floor for the last couple of minutes here to let readers know what else that maybe we didn’t get to that they need to know about Prop 19 and how to us it.
JP: I think we’ve covered most of the elements of Prop 19. I did want to alert your readers and listeners to visit our website. We actually have a special section dedicated to Prop 19 where we put all the information we have available, in an easy-to-use format.
I will say that we’ve struggled with Prop 19. It was an incredibly complicated change to the property tax administrative system. After it was adopted in November, 2020, we needed – conservatively – 12, probably more like 18 months, to make technological changes, to deal with workflow issues; Prop 19 did not give my department any additional money or personnel, to deal with this additional work. The challenge was, the legislation only gave us two months to put this fully into effect. That was just impossible. There’s no way we could have ever done it in two months. We couldn’t have done it in six months. And the legislation had all types of flaws that made the measure, as adopted, unenforceable. So we spent a good portion of the year, in 2021, trying to fix the deficiencies in the law. But what it meant was anybody applying for Prop 19, their application didn’t get processed because we didn’t know how to process it. There were too many inconsistencies in the law. So they just piled up. There was a backlog, and a lot of people, unfortunately, and unfairly, were receiving supplemental tax bills because the system was not able to keep up with the changes in the law. And a lot of people were angry about that. They were angry at me, which I feel bad for, but it was not the fault of the assessors. We were delivered a dumpster fire of legislation – we were the ones who got it fixed – but it took time, and in the meantime, people had to wait for these applications to be processed, and sometimes they got tax bills that we were able to correct later on, but it just meant there were all kinds of logistical and administrative mess that we had to work our way through.
TF: Yeah, two months? That’s nothing. They don’t even certify the election for another month!
JP: This is sometimes the challenge when you’re making complicated tax policy and you’re putting it on the ballot without consulting with the people responsible for administering it.
TF: I don’t know if people can see my Chat on the recording, but I’m going to read this site to you in case I’m the only one that can see it. It’s https://assessor.lacounty.gov/exclusions/prop19. And there’s a disaster relief site as well: https://assessor.lacounty.gov/tax-relief/disaster-relief.
So, Mr. Assessor, thank you for joining us today. Readers – he is our County Assessor, Jeff Prang. Thank you so much for joining us today to talk about Prop 19.
JP: My pleasure. Anytime.
TF: I hope to see you in the new year.
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