Tax Basis Portability & New CA Property Tax Relief Benefits

Although a parent-child transfer exemption or exclusion, and related CA property tax relief benefits have no age restrictions — tax basis portability is available only to homeowners that are age 55 or older as of their home-sale date.  You are also eligible if you are significantly disabled, or your home has been severely decimated or damaged by wildfire or a natural disaster.  Moreover, a replacement residence can be bought before the original home is sold.

Tax Basis Portability and Taxable Value

As of April 1, 2021 homeowners in California can now transfer the “taxable value” of their primary residence to a “replacement primary residence”.  Just as a parent-child transfer exemption is available in all counties; this too can happen anywhere within all 58 counties, in two years or less of the sale of the original property;  without any County restrictions as there were before Proposition 19 came about. This can be done up to 3 times, with no restrictions for homes that have been badly damaged or destroyed by wildfire, for instance the type of forest fire that we have seen lately destroying property throughout the state.

It’s not that complicated.  Say your home has an assessed value of $400,000 and you sell your home for $600,000 – and then purchase a new house for $550,000.  Rather than a new reassessed value of $550,000, you can apply to the Tax Assessor to have the value of your new home reset to the original $400,000 assessed value. This could save you roughly $1,800 every year in property taxes.

“Tax basis portability” in California is a way to lower the assessed value of your house. Hence , in plain English, your property taxes will go down.  Your property tax total for the year is usually a direct reflection of your home’s assessed value. And this impacts the sale price of course, if a home is being sold. When you own and reside in your home as a primary residence, your assessed value goes up at a maximum in California by only 2% every year. With tax basis portability, you can transfer the former assessed value of your home over to your next home.

New California Board of Equalization Clarification

The Board of Equalization has now clarified this question in May of 2021, and stipulated that there is no requirement for a homeowner to be the sole owner of an original primary residence or a replacement primary residence if he or she is age 55 or older, significantly or permanently disabled, or who is a victim of a wildfire.  Hereby adding more  flexibility to tax breaks that existed previously, along with a newly imposed right to take advantage if these particular tax breaks in any county in the state.

This was formerly not possible, and one was limited to a specific number of counties. These older rules limited the location of the properties. Proposition 60 restricted tax basis portability within one county. Proposition 90 expanded that to several counties, allowing you to sell property in one county and purchase property in another, but only if they were on the approved county list.  With the advent  of  Proposition 19, instead of limiting the counties of transfer, you can use this benefit anywhere in California — a major improvement.

Propositions 60 and 90 and 110 Expanded

Proposition 19 grants more freedom over the older Propositions 60, 90, and 110. There are no more county restrictions or sales pricing  restrictions, and people can use the benefit more than once.

Proposition 19 Removes Restrictions on Home Sales Pricing

Under Propositions 60 and 90, only transfers of “equal or lesser value” were eligible for tax basis portability. Proposition 19 allows the transfer of tax basis no matter what the value is. However, there needs to be  specific adjustments to the tax basis should the sale price of the replacement residence be more than the sale price of the previous residence.

Equal or Lesser Value

The tax basis can be transferred as long as the replacement residence is of equal or lesser value. There can even be an inflation index of 105% if purchased inside of 12-months, and 110% if bought  within the second year of the sale of the initial property.

Lower to Higher Value

Under Propositions 60 and 90, if the replacement residence had a higher market value, you weren’t eligible for the benefit. After the advent of Proposition 19 you are still eligible for tax relief.  If you sell your primary residence that is currently assessed at $300,000 for $500,000, and you buy a new house for $600,000 the increase in price of $100,000  also increases the assessed value of the first house…

So the math would look something like this: $300,000 plus $100,000 equals  $400,000 — the new assessed value. Therefore, rather than getting hit with property taxes that are based on $600,000 you pay a tax rate that is based on $400,000.  A significant difference.

Proposition 19 Benefits: Numerous and Expanded Uses 

Proposition 19 now allows up to three tax basis transfers during a lifetime,  even if you have transferred your tax basis in the past; and    for homeowners who have lost their primary residence in a wildfire there are no limitations. Even if you have already used Proposition 60 or Proposition 90 to avoid property tax reassessment it isn’t factored in to the three transfers you’re permitted with Proposition 19. 

Likewise, with Proposition 19, new homeowners or beneficiaries just inheriting a home from a parent  have up to a year to move in to their inherited home as a primary residence and can use a property tax transfer without any issues to avoid property tax reassessment when they transfer parents’ property taxes over to themselves, typically taking advantage of a parent-child transfer exemption — namely a parent-to-child exclusion, now being able to keep parents property taxes basically forever.

Inheriting property taxes under a parent-child transfer exemption and other, newer, rulings — although a little more limited than before — still ends up providing middle class beneficiaries in California with a low parent to child property tax transfer on an inherited home, plus an opportunity to buyout property shares from co-beneficiaries with a 6 or 7-figure trust loan working in concert with  Proposition 19 furnishing siblings with a good deal more buyout cash than any normal outside buyer would offer for the same property with a realtor and a bank involved, plus an inherited home can still remain in the family as a valuable financial and sentimental asset; affording working families lower taxes from genuine property tax relief.