Prop 19: Changes in Property Tax Rules
Should the California constitution be changed to modify the rules for transferring property tax assessed values and use any resulting new tax revenues for fire suppression efforts, schools, and local government?
Prop. 13 set initial tax assessments on property values in 1975. Annual assessment increases are limited to two percent. Property taxes are limited to one percent of the assessed value plus any voter-approved local taxes. When a change in ownership occurs, the property is reassessed at its then current market value. The market value of most properties grows faster than two percent per year, leaving many properties taxed at a value below market price.
Some homeowners who are over the age of 55, have a severe disability, or whose property has been impacted by a natural disaster are allowed a once-in-a-lifetime transfer of the taxable value to a different home of equal or lesser value. Transfers must occur within two years. Ten county governments allow transfers of taxable value between counties.
Special inherited property rules allow some transfers without resetting the taxable value. When principal residences are inherited by adult children or between grandparents and grandchildren, the heirs inherit the original owner’s lower property tax assessment.
Prop. 19 would:
- Allow eligible homeowners to transfer a property’s taxable value to a more expensive home anywhere in the state, up to three times in a lifetime. Once-in-a-lifetime transfers would still apply to victims of wildfires and natural disasters.
- Eliminate the transfer of taxable values of inherited properties, unless the properties are the heirs’ principal residence or a farm.
- Owner-occupied inherited properties with a market value more than $1 million greater than its taxable value would receive an upward tax assessment on the $1 million amount, adjusted for inflation after February 16, 2023.
- Use increased state tax revenue from Prop. 19 in statewide fire suppression efforts and reimbursement of counties’ costs.
Revenue – The overall impact of Prop 19 would probably yield local governments and schools tens of millions of dollars per year. Over time, these revenue gains could grow to a few hundred million dollars per year. Transferring lower property tax bills to a different home could reduce some local property tax revenues; however, revenue increases overall are expected in the tens of millions of dollars per year, reaching a few hundred million dollars per year over time. Increased home sales could generate transfer tax and state income tax revenue expected in the tens of millions of dollars each year.
Costs – State administration costs are expected in the tens of millions of dollars each year. There could be some state cost savings where lower property taxes result in lower state matched school funding. Savings would be applied to fire suppression efforts.