Are you 55 years of age or older and want to move into a new home? If so, you need to be aware of Proposition 19 and how it could affect your real estate transaction. If you are interested in purchasing Bay Area property after selling your current home, you will benefit from the proposition. However, if you had planned to pass your estate to a child when you move to a new residence, you will likely find that Proposition 19 could challenge your plans.
Luckily, we can help you understand what Prop. 19 is, how it may affect your real estate transaction, and what this means for you and your real estate. Read on to learn more.
What is Proposition 19?
Voters approved Proposition 19 in November of 2020, and it allows California homeowners who are aged 55 or above to bring tax benefits with them when they make the decision to move into new Bay Area homes. In sum, those who qualify are able to combine the taxable value of the home they sell with the more expensive home they buy, so those who buy a home of greater value than the one they sell in the state of California can transfer their tax basis.
Before Prop. 19 passed, homeowners were only able to perform limited transfers to specific counties and only for homes that were of the same or lesser value than the houses they sold. Those who are 55 or older and who have severe disabilities or lost a home in a natural disaster are also affected by Proposition 19, as they are now able to transfer their tax assets three times. Previously, they could only do so once.
Proposition 19 also has a third provision that makes passing down property less beneficial. In this provision, it is stated that market-value reassessments are required for inherited homes that will not be used as the primary residence for the persons inheriting them, thus limiting the availability of the parent-child exclusion for tax assessments.
Previously, parents were able to transfer a residence to an heir with no required fair-market reassessment. Under this arrangement, heirs benefited from the same property tax basis their parents enjoyed. They could also have vacation or second homes transferred to them without increased property taxes if the property was $1 million or less.
The Negatives of Prop. 19
Not everyone supported Proposition 19, as some voters believed it would only serve to make the state a more expensive place to live for those who inherit property. With property taxes increasing on homes passed down to relatives, many of those who inherit homes throughout Bay Area real estate may decide to sell the property and move to other, more affordable parts of the state or other states with more affordable housing. Opponents of the proposition argued that losing these homeowners would weaken the real estate market and the California economy as a whole, as they will not be spending money in the area, nor will they sell their inherited property in the future and buy new homes.
The Positives of Prop. 19
Supporters of Proposition 19 voted for it because they hoped it would help empty-nesters and older individuals who needed to move due to health reasons find new homes without facing prohibitive tax consequences. In theory, Prop. 19 would encourage older buyers to leave homes that no longer worked for their lifestyles and open up these homes to younger buyers who were on the lookout for first or second homes. Addressing the housing shortage in the Bay Area was top on the list of those who voted yes for Prop. 19.
Helping older homeowners and adding inventory to the market were not the only benefits of Prop. 19. It will also add up to $2 billion to the state budget of California. The increase in funds will be used by the state to develop programs for the homeless, work to create affordable housing for California residents, increase fire protection services, and add money to the budgets of other local services aimed at making California neighborhoods better and safer places to live. When neighborhoods are strengthened, homeownership increases and the state’s real estate market will be further strengthened.
Tips on Buying Bay Area Homes in the Wake of Prop. 19
Though Proposition 19 will have an effect on the California real estate market, most home buyers and sellers will not be affected by it. The biggest obstacle facing homebuyers is the strong seller’s market that has more prospective buyers than available homes. Though it may be more difficult to find the home of your dreams in this competitive market, you can still be successful if you follow these tips:
◾ Don’t wait. It’s important to find homes for sale before your competition. Work with a real estate agent who can alert you when homes have just been listed, are going to be listed soon, or aren’t going to be listed to the public at all.
◾ Get preapproved. Many sellers in this type of market will not consider offers by those who are not preapproved for a mortgage. Fortunately, the preapproval process is quick and easy and not only shows sellers you’re serious but also gives you a better idea of how much you can afford.
◾ Give up perfection. Make a “must list” that includes things like neighborhood or number of bedrooms and a wish list with features you would like to have in your new home but that aren’t deal-breakers. You can always remodel or upgrade your home after buying it to better match your ideals.
While Proposition 19 will change how a certain group of sellers conduct their transactions, it’s unlikely to have a large effect on the overall way that people buy and sell Bay Area homes. If you’re ready to make a move, reach out to Lydia Sarkissian, Magda Sarkissian and Bill Bullock of the Sarkissian Bullock Team to help you through the process.