Proposition 19, which would expand one property tax break for seniors but rein in another for transfers of real estate between parents and children, appeared headed to passage, according to unofficial election results.
The vote, with all precincts reporting at least partial results, was 51.5% to 48.5% as of Wednesday evening. Bay Area counties gave the ballot measure its strongest support, with yes votes ranging from roughly 56% to 60%.
The Legislative Analyst’s Office estimated that the net effect of Prop. 19 would be to raise property tax revenues for state and local governments, schools and firefighting.
Prop. 15, which would have increased taxes by reassessing most commercial properties at market value at least once every three years, appeared headed to defeat by almost the same slim margin that Prop. 19 was ahead.
Although both would raise taxes, it’s possible that more voters focused on the part of Prop. 19 that will give seniors, disabled people and some disaster victims more ways to sell their home and buy another without facing a big tax increase.
In California, property is reassessed at market value when it changes hands, with some exemptions to reassessment. In between transfers, its assessed value (also called taxable value or tax base) can go up by no more than 2% a year, plus the value of major improvements. Normally when property turns over after many years, its assessed value, and thus its tax bill, soars.
Prop. 19 would let people older than 55 or those who are severely disabled sell their primary residence and transfer its tax base to a different primary residence of any value anywhere in the state, up to three times. However, if the owner bought a more expensive home, the difference in market value between the old and new homes would be added to the old tax base.
Today these people can transfer their tax base only if they buy a replacement home of equal or lesser value in the same county or in one of 10 that accept inter-county transfers. And they can do this only once. Prop. 19 would also let people who lost their home in a natural disaster transfer its tax base to a home in a different location.
This provision would apply to transfers starting April 1. Existing law and Prop. 19 both give eligible homeowners two years to sell the old home and buy the new one, or vice versa. It’s unclear whether an eligible homeowner would have to both buy and sell on April 1 or later to take advantage of Prop. 19’s more generous terms. The Legislature may have to adopt clarifying language.
The Legislative Analyst’s Office expects this provision will reduce property tax revenues, especially in counties that attract a lot of older homeowners. Some of the increased revenues from Prop. 19’s other provision would go to counties that lost money.
Prop. 19 would raise tax revenues by reining in generous tax breaks that apply to property transfers between parents and children (and between grandparents and grandchildren if the grandchildren’s parents are not alive).
Today, parents and children can transfer — by gift, sale or inheritance — a primary home of any value and it won’t be reassessed at market value, even if they leave it vacant or rent it out. They can also transfer other property, such as rental homes or commercial property, and exempt up to $1 million of current assessed value (not market value) from reassessment.
Prop. 19 would abolish this tax break on any property that was not being used as a primary residence or farm.
On transfers of a primary residence or farm, the property would not be reassessed if the new owner also uses it as his or her primary residence or farm and the difference between the assessed value and current market value does not exceed $1 million (indexed for inflation). If it does exceed $1 million and is used as a primary residence, it would be partially reassessed, but not to full market value, according to a formula. There is some disagreement on this formula, which the Legislature also might need to clarify.
This provision would apply to transfers made on or after Feb. 16; it is not retroactive.
Prop. 19 would increase home sales, which is why the California and national associations of Realtors together spent more than $45 million promoting it. Opponents, primarily the Howard Jarvis Taxpayers Association, spent less than $325,000.
Some ads for the proposition focused on the fact that it would abolish the provision that lets wealthy heirs, including some Hollywood celebrities, rent out valuable property they got from their parents without facing a tax increase. One flyer showed two young men — in suits and designer shades with big grins on their faces — under the headline “Prop 19 Closes Tax Loopholes for East Coast Trust Fund Heirs.”
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The Legislative Analyst’s Office estimated that the proposition could generate tens of millions of dollars a year in extra tax revenues for state and local governments during the early years, growing to a few hundred million of dollars annually over time. Schools could expect a similar windfall. Revenue from other taxes, such as capital gains taxes on increased home sales, could increase by tens of millions of dollars per year, with most of that new money going to fire protection.
The California Budget Project called it “one of the most complicated measures on the November 2020 state ballot.” It said its “central proposal to expand tax breaks for older, mostly white, mostly economically advantaged homeowners would make California’s tax system less equitable” while doing “little or nothing to help the Californians most severely affected by the state’s housing affordability crisis, including renters, families with low incomes, and most Black and Latinx residents.”
Becky Warren, a spokeswoman for the Yes on 19 campaign, said in a statement, “We are optimistic that when all the votes are counted, California seniors, disabled homeowners, and wildfire victims will get much needed housing and tax relief, while delivering constitutionally protected funding for firefighters, local schools, cities, and counties.”
Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender
Article source: https://www.sfchronicle.com/business/networth/article/Proposition-19-which-modifies-Prop-13-s-tax-15699669.php
