What does Prop 19 mean for Orange County homeowners?

What is Prop 19?

Prop 19 is a 2020 amendment to the California Constitution that changed who can move a home's taxable value to another home and when an inherited home keeps its parent's tax base. Voters approved it on November 3, 2020. The rules for inherited homes took effect on February 16, 2021, and the tax base transfers on April 1, 2021.

Both rules sit on top of Prop 13. The county assessor sets a home's taxable value when you buy it, and that value can rise by no more than 2% a year while you own it. The basic tax rate is 1% of that value, plus any local bonds voters have approved. When the home changes hands, it is reassessed at market value.

That gap is why Prop 19 matters so much here. An owner who bought in Costa Mesa or Huntington Beach decades ago may be taxed on a value that is a small part of today's price. For example, an owner taxed on $350,000 who buys a $1,400,000 home without Prop 19 starts paying on $1,400,000: about $14,000 a year at the 1% base rate, against about $3,500 before, and both before local bonds.

Who can move their property tax base under Prop 19?

Three groups can: owners who are at least 55, owners who are severely and permanently disabled, and owners whose home was damaged or destroyed by a wildfire or a disaster the governor declared. You need to meet only one test, and you must meet it on the day you sell the original home.

A disability has to be certified by a licensed physician or surgeon. For a disaster, the Orange County Assessor says more than half of the value of the home's improvements must have been damaged. In every case both homes must be your principal residence, and the replacement can be bought or newly built.

The replacement can be anywhere in California. Under the older rules, carrying a tax base across county lines worked only where the receiving county had passed an ordinance allowing it, so an owner leaving Laguna Niguel for San Diego County could not count on it. Under Prop 19 the county line no longer matters.

Owners who qualify by age or disability can make three transfers in a lifetime. Disaster victims are not held to that limit.

How long do I have to buy the replacement home?

You have two years in either direction. The replacement has to be bought or newly built within two years of selling the original home, and if you buy first, the original has to sell within two years of that purchase.

The order you choose affects more than the move. It changes the value test in the next section, and buying first means carrying two homes for a while. Most sellers decide the order on cash flow and then check what it does to the tax.

What if my new home costs more than the one I sold?

If the replacement is worth more than the limit allows, the difference is added to the tax base you carry over, and you keep the rest of the break. The limit depends on when you buy, measured against the market value of the home you sold.

The Orange County Assessor's own example uses a home that sold for $600,000 with a Prop 13 value of $200,000. If the owner buys a $400,000 replacement, the new taxable value stays at $200,000. If the owner buys a $900,000 replacement, the $300,000 paid above the old home's price is added, for a new taxable value of $500,000.

Moving to a cheaper home keeps your old taxable value. It does not lower it to match the smaller price.

What happens to property tax when you inherit a house in California?

Since February 16, 2021, an inherited home is reassessed at market value unless it was the parent's main home and the child makes it their own main home. When both are true, the child keeps the parent's taxable value up to a cap: that value plus an allowance that started at $1,000,000 and is adjusted every two years. For transfers from February 16, 2025 to February 15, 2027 the allowance is $1,044,586. Anything above the cap is added.

For example, say a parent's taxable value was $300,000 and the home is worth $1,500,000 when it passes to a daughter who moves in. The cap is $1,344,586. The $155,414 above it is added to the parent's value, so her new taxable value is $455,414 rather than $1,500,000.

The child must file for the homeowners' exemption, or the disabled veterans' exemption, within one year of the death or transfer. File later and the break only applies from then on. A few more limits apply:

• A rental, a vacation home or any other property that was not the parent's main home is reassessed at full market value.
• Transfers between siblings or other relatives do not qualify.
• A grandchild qualifies only if the parent who was the grandparent's child has died.
• Transfers through February 15, 2021 follow the older rules of Propositions 58 and 193.

Should I keep, rent or sell an inherited house in Orange County?

Each choice carries a different tax result, so price all three before you decide. Moving in keeps much of the parent's base, as above. Renting the home out means a reassessment to market value, so the rent has to cover a full-value tax bill along with insurance and upkeep.

Selling ends the property tax question. For federal income tax, the IRS generally sets an heir's basis at the home's market value on the date of death, so a sale soon after often produces little taxable gain. Your tax adviser should confirm that for your estate.

Greg can give heirs a written market analysis of the home and of what it would rent for, which helps the family compare keeping it with selling it. If your adviser needs a formal date-of-death value for a tax filing, that usually calls for a licensed appraiser. If the family wants to sell quickly and skip repairs, the page on selling two ways compares a cash offer with a full listing.

How do I file a Prop 19 claim in Orange County?

You file a state claim form with the county assessor; nothing happens automatically when the deed records. The forms come from the State Board of Equalization or the assessor.

How does Prop 19 change the decision to sell?

For an owner who qualifies, Prop 19 takes most of the tax jump out of a move within California, so the decision comes down to the homes and the timing. The value test rewards knowing what your current home will sell for before you commit to the next one's price, because the 100%, 105% and 110% limits are measured against that sale.

Greg Toussieng, a California real estate broker, DRE #01495415, starts every sale with a written comparative market analysis, then plans the sale and the purchase on one calendar so the replacement lands inside the window you chose. You can see that process on the selling page, and the buying page covers the purchase side.

Greg explains the rules as the State Board of Equalization and the Orange County Assessor publish them. He is not a tax adviser, and this article is not tax advice. Before you sign anything, ask your tax adviser or the assessor's office to confirm how Prop 19 applies to you. Commission is one more number on the net sheet, and the guide to realtor commission in California explains how it is set. If you are choosing who sells your home, read how to choose a listing agent, and more short answers are on the questions page.

What is your home worth today?

Your sale price sets the ceiling in the Prop 19 value test, so start with a figure you can check. Enter your address and Greg will reply with a price range and the nearby sales behind it.