The expansion was one half of Proposition 19, which California voters narrowly approved in November 2020. The California Realtors Association pumped $40.4 million into the Yes on Prop. 19 campaign, hoping it would stimulate housing sales by getting seniors to move to more suitable homes or neighborhoods.
The association doesn’t have enough “solid data” to comment on whether that was money well spent, a spokeswoman said.
Data obtained from county assessors, however, shows that all nine Bay Area counties have seen a jump — in some cases a leap — in the number of over-55 and disabled home buyers claiming the expanded tax break since it took effect on April 1, 2021.
Sonoma County, which had been averaging about 150 applications a year, received 441 in the 12 months ended April 1. Marin County’s numbers jumped from 60 or 70 in a typical year to 259. San Francisco got 240 claims in the latest 12-month period, up from two or three dozen the previous two years.
Single-family home sales in the San Francisco Metro area increased by about 19% from the 12 months ending April 2019 to the 12 months ending in April 2021, according to data from the real estate listing website Zillow, which is not nearly enough to account for these jumps.
Tax incentives are supposed to stimulate behavior, but it’s hard to know how many homeowners who applied for a Prop. 19 transfer would have moved without it. “You would expect to see some increase in over-55 sellers, irrespective of the law change, given the massive (home) price increases,” said Brad Williams, a partner with Capitol Matrix Consulting. It also came at a time when the pandemic was causing many people, like the Mischaks, to consider a lifestyle change.
“We rethought our lives. But where would we go? We’ve been to all seven continents. When it all came down to it, we wanted to stay in the Bay Area,” said Bob Mischak, a retired 64-year-old chief financial officer.
In September 2020, they started looking in Marin, but were concerned about the property tax increase they’d face if they sold their home of 28 years in Alameda and lost their Proposition 13 benefit.
Under Prop. 13, property in California is generally reassessed at market value only when it is transferred by sale, gift or bequest. In between transfers, a property’s tax assessment can’t go up by more than 2% a year, plus the value of additions or major improvements. Assessors call this the “factored base-year value” but most people call it their tax base or assessed value.
Including state and local property taxes, Californians typically pay around 1.1% to 1.2% of their assessed value each year.
Thanks to Prop. 13 and skyrocketing real estate prices, most people who have owned their homes for decades pay far less than neighbors who bought recently.
Prop. 13, passed by voters in 1978, helped prevent older adults from having to sell their homes to pay soaring property tax bills, but it also discouraged them from moving because they’d typically face a big tax increase if they bought a new one.
To nudge empty-nesters out of their family-size homes, voters subsequently passed Propositions 60, 90 and 110 from 1986 to 1990. These “tax-basis portability” measures said homeowners 55-plus or severely disabled could sell their primary home, buy or build a replacement home “of equal or lesser value” two years before or after the sale, and transfer their tax base from the old to the new home.
The new home, however, had to be in the same county as the original home or in one of a handful of counties that accepted transfers coming from other counties. (In the Bay Area, only Alameda, San Mateo and Santa Clara counties accepted incoming transfers in 2020.) A single person or married couple could do this only once in a lifetime.
These myriad restrictions prevented many older adults from taking advantage of tax-basis portability.
In 2018, the Realtors association sponsored a ballot initiative, Proposition 5, that would have greatly expanded the ways older people and the disabled could transfer their property tax base. But the Legislative Analyst’s Office estimated it would reduce property tax revenue and the measure was soundly defeated.
Fast-forward to 2020. Acting hastily, the California Legislature placed Prop. 19 on the ballot. It largely mirrored Prop. 5, but found a way to “pay for” the expanded senior tax break by drastically downsizing a tax break that let parents and children (and grandparents and grandchildren if the parents were deceased) transfer a large amount of property between each other without it being reassessed.
The Legislative Analyst’s Office estimated that Prop. 19 would produce a net increase in property tax revenue that would be divvied up, according to a complicated formula, with some of the extra dollars going to fire departments. It passed with a slim 51.1% majority.
Prop. 19 replaced the old portability propositions (60, 90 and 110) that applied to 55-plus and disabled homeowners. Under the new law, they can transfer their tax base from their existing primary residence to a new primary residence of any value, anywhere in the state. However, if the home they buy costs more than the one they sell, the difference in value (with a small adjustment for inflation) is added to their old tax base to arrive at their new tax base.
Suppose an eligible homeowner sold a home for $1 million. The assessed value at the time of sale was $400,000. The homeowner bought a replacement home for $1.5 million. Ignoring the small adjustment, the $500,000 difference in sales prices would be added to the old tax base of $400,000. The new assessed value would be $900,000. Without a Prop. 19 transfer, it would be $1.5 million. Prop. 19 would save this homeowner about $7,000 a year in property taxes.
An older adult or disabled homeowner can now do this three times each; a husband and wife could do it a total of six times (should they live that long). The replacement home still has to be purchased no more than two years before or after the sale of the original home.
People of any age whose home is severely damaged by a natural disaster can also use Prop. 19 to transfer their tax base from that home to a replacement home of any value anywhere in the state.
Homeowners apply for the transfer with the assessor in the county where the replacement home is located. They have three years from the date they buy the replacement home to file the claim for it to apply retroactively.
After Prop. 19 passed, the Mischaks got more serious about moving. They put an offer on a condo in Tiburon and had it accepted in January 2021. They put their Alameda home on the market in March 2021, and it sold in one day, sooner than expected.
They knew the portability provision took effect April 1, 2021, but Prop. 19 did not make it clear whether the sale of the original home and purchase of the replacement home both had to take place on or after that date, or if one could take place before and one after. This was one of many questions and ambiguities lurking in Prop. 19 that would not be clarified until the Legislature passed SB539 in September 2021. (It said the purchase or sale, but not both, could take place before April 1, 2021, but that edict came too late for the Mischaks.)
Rather than take any chances, they delayed the closing of their Alameda home until April 1, 2021, and closed on their smaller but more expensive Tiburon home the next day. Although the substantial price difference was added to their old tax base from Alameda, Bob Mischak says he’s still saving about $5,600 a year in property taxes.
Asked whether they would have moved without Prop. 19, Mischak said “maybe.”
Shana Rohde-Lynch, a Compass Realtor in Marin, has had three clients, including the Mischaks, buy homes in Tiburon and take advantage of Prop. 19.
“It was definitely the driver,” she said. “People had wanted to move in the past, but you couldn’t transfer your tax base everywhere. The combination of people re-evaluating their lives during COVID and the tax change was a motivation for a lot of people.”
Other agents say their clients aren’t aware of Prop. 19, or they’re aware but don’t want to move because of the steep capital gains tax they’d owe on a highly appreciated home.
“The philosophy (behind Prop. 19) was to help spur home sales,” said Cameron Platt, co-founder of Abio Properties in Oakland. While he can’t personally say whether it has increased sales, “it has made it easier to talk to our clients who are eligible, calming some of their fears about how much more expensive this is going to be.”
His clients Linda and Ed Tywoniak are putting their home of 38 years in Oakland up for sale and are looking for homes in Pleasant Hill, where their children and grandchildren live. They’re planning to downsize, but will apply for a Prop. 19 transfer when they cross into Contra Costa County.
“It’s hard to say” what role Prop. 19 played in their decision, Linda Tywoniak said. “I wasn’t really that aware of it,” when they started planning their move. “Most of my questions were about capital gains, to tell you the truth.” When their agent told her about Prop. 19, “it was a surprise.” Prop. 19 “was an added incentive. Maybe it put me over the edge.”
No Bay Area county has gotten more Prop. 19 transfers than Contra Costa. It received 833 in the 12 months ended April 1, compared with 250 in an average year, Assessor Gus Kramer said. When asked why they moved into the county, a substantial number “said their kids moved because they couldn’t afford to live in San Francisco, San Mateo or Santa Clara County, and we want to be closer to our grandchildren,” he added.
Of the 833 applications received, 387 came from within Contra Costa and 446 came from other counties. It got 205 from Alameda, 59 from San Mateo, 50 from Santa Clara, 26 from San Francisco and the rest from other counties.
In addition, 282 homeowners filed a claim to move their tax base from Contra Costa to another county, Kramer said. (Although homeowners file a Prop. 19 application with the county they’re moving to, that county sends a form to the county they’re moving from to verify their tax base, which is how assessors know how many people are moving out.)
Sonoma also had more people moving in (225) than moving out (87). Napa had 89 moving in and only 13 moving out.
Santa Clara, on the other hand, had 598 people applying to transfer their tax base out of the county and only 99 transferring into the county.
Some homeowners have faced long delays in getting their Prop. 19 applications approved. While waiting, some have had to pay property tax on the full market value of their newly purchased home — or the previous owner’s assessed value — and await a refund.
Some assessors said they couldn’t begin approving or denying claims until the Legislature passed the clarifying bill in September or until the Board of Equalization issued a letter to assessors on Feb. 17 providing guidance based on that bill. San Francisco and Sonoma county assessors say they have just begun processing Prop. 19 applications. Some other counties are closer to clearing their backlogs.
Santa Clara County, on the other hand, didn’t wait for guidance to start approving applications. “We decided to take the most conservative interpretation of the ballot measure” and use that to process Prop. 19 applications, county Chief Appraiser John Recchio said. The guidance issued in February will change assessments for a few homeowners, “but it will be a lower assessment,” not a higher one.
County assessors were also deluged with work that resulted from the other half of Prop. 19, which vastly shrank the ways parents and children can transfer property between each other without it being reassessed. The stingier rules apply to properties transferred after Feb. 16, 2021. Most assessors received an avalanche of applications from families who rushed to transfer property before that date so they could claim exemptions from reassessment under the old rules.
San Francisco, for example, got 2,571 claims for “intergenerational transfers” between Nov. 9, 2020 (when Prop. 19 passed), and Feb. 15, 2021. Since then it has only received about 275.
Marin County got 844 applications in the 3.5 months between Dec. 1, 2020, and Feb. 15, 2020, compared with only 146 in the previous 14.5 months.
The parent-child provision of Prop. 19 is expected to increase home sales — and tax revenue — for many counties. In the past, a parent or child could transfer a primary residence and a substantial amount of other property — such as a rental or vacation home or commercial property — without it being assessed. The parent or child receiving the property could live in it, use it or leave it vacant.
In the future, a primary residence (or family farm with a home) will escape reassessment only if the parent or child receiving it also uses it as a primary residence, and even then there is a limit on the value that can escape reassessment. All other property will be reassessed at market value upon transfer. That means children who inherit homes they don’t want to live in are more likely to sell them.
The Howard Jarvis Taxpayers Association is collecting signatures for a November 2022 ballot initiative, called the Repeal the Death Tax Act, that would overturn the parent-child provisions of Prop. 19 and reinstate the previous rules. To get on the ballot, they need to collect 997,139 valid signatures, which must be submitted by the end of April.
The Board of Equalization doesn’t have data yet on the financial impact of Prop. 19. But the proposition requires the California Director of Finance, on or before September 1 each year from 2022 through 2027, “to calculate the additional revenues and savings that accrued to the state” for the previous fiscal year ending June 30. In making this calculation, the director “shall use actual data or best available estimates where actual data is not available.”
For more information about Prop. 19, visit your county assessor’s website or go to https://boe.ca.gov/prop19.
Kathleen Pender is a Bay Area writer. Email: firstname.lastname@example.org