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What, Exactly, Is My New Property Tax Under Proposition 19 Family Transfers

  • September 23, 2021
  • devinlucas

(“new” property tax basis) = ((Fair Market Value) – ((old property tax basis) + $1,000,000)) + (old property tax basis))

As Proposition 19 experts, we’ve been getting a lot of questions from property owners surrounding the new proposition 19, one of the more common being how, exactly, will the new property tax be figured out with this whole million-dollar exclusion of family real estate transfers???

Questions? – Paid one-hour confidential legal consultations are conducted daily via Zoom and address virtually all questions, options, tax implications and strategies. (Book a consultation here.)

The good news is that the math is surprisingly simple, see below, including examples.

The bad news is that Proposition 19 now exists, meaning many next-generation property owners are going to face dramatic property tax increases, especially those in coastal areas such as Newport Beach, Costa Mesa, Laguna Beach, Orange County, and the Bay Area especially.

To understand the full details of Proposition 19, and if you will even qualify for this new exemption (vs. a full 100 percent reassessment), review our in-depth Prop 19 article here.

Assuming you DO qualify for the prop 19 exemption, once you inherit (or purchase) your parents’ real estate, your new property tax value will be:

WHAT IS MY NEW TAX BILL?

You need to know the current property tax basis (located on your property tax bill) and the “fair market value” (see below on “fair market value” determination) to figure your new bill….

Formula for Your New Property Tax Base as Math aficionados will like:

(“new” property tax basis) = ((Fair Market Value) – ((old property tax basis) + $1,000,000)) + (old property tax basis))

To attempt to state this plainly:

You get the OLD basis, PLUS $1,000,000, to make the new basis. IF the fair market value is ABOVE that new figure, you will get taxed (at 1%) on anything over the new number.

In Other Words, Your New Property Tax Base is the GREATER OF:

Your current property tax basis (see property tax bill to determine),


OR,


The “new” property tax basis, using the $1mm exemption, is calculated as follows.

Step 1: old property tax basis + $1,000,000 = new exemption amount. Everything over this amount will be taxed.

Step 2: take the fair market value minus that new exception amount. This is the ‘delta’ that you will be taxed on (at 1%, but check with your County Assessor for precise tax information and additional bonds, etc. that may be impacted).

Got it? See examples below.

*What is the fair market value and who will determine? Easy answer: The County Assessor. Each County’s Assessor is charged with this task, not an easy one. Computers will generate many values, and it will be up to the new property owner to potentially dispute the County’s new assessments (if they feel a dispute is warranted, and could prevail in such a dispute – a simple check of local sales and/or an appraisal will help your case for, or against, the County’s determination).

EXAMPLES (in growing order of bad news for the new owner):

Example 1: A family home has a factored base year value (FBYV) of $300,000 and a fair market value of $900,000. The full amount is excluded under Proposition 19 since the fair market value is under $1,000,000. No new property tax increase.

Example 2: A family home has a factored base year value (FBYV) of $300,000 and a fair market value of $1,500,000. The excluded amount under Proposition 19 is $300,000 + $1,000,000 = $1,300,000. The difference, $1,500,000 – $1,300,000 = $200,000. Thus, the adjusted base year value is $500,000 (FBYV $300,000 + difference of $200,000). This results in a $2,000* per year property tax increase (i.e. that $200,000 at a 1% tax rate *check with your local County to see of other potential taxes, bonds, etc. that could be impacted as well).

Example 3: A family home has a factored base year value (FBYV) of $60,000 and a fair market value of $3,500,000. The excluded amount under Proposition 19 is $60,000 + $1,000,000 = $1,060,000. The difference, $3,500,000 – $1,060,000 = $2,440,000. Thus, the adjusted base year value is $2,500,000 (FBYV $60,000 + difference of $2,440,000). This results in a $24,400* per year property tax increase (i.e. that $2,440,000 at a 1% tax rate *check with your local County to see of other potential taxes, bonds, etc. that could be impacted as well).

Example 4: A family home has a factored base year value (FBYV) of $5,000,000 and a fair market value of $14,500,000. The excluded amount under Proposition 19 is $5,000,000 + $1,000,000 = $6,000,000. The difference, $14,500,000 – $6,000,000 = $8,500,000. Thus, the adjusted base year value is $13,500,000 (FBYV $5,000,000 + difference of $8,500,000). This results in a $100,500* per year property tax increase (i.e. that $10,500,000 at a 1% tax rate *check with your local County to see of other potential taxes, bonds, etc. that could be impacted as well).

As you can see, once you hit a certain threshold (by virtue of where the fair market value and the initial basis converge), the new property tax effectively converts to a mere $1mm “off” the fair market value.

This is the official Q&A from the California Board of Equalization on the topic:

Q. Will I lose the parent-child exclusion if the value of the family home is greater than $1 million dollars?

A. The value limit under Proposition 19 is the sum of the factored base year value plus $1 million. If the market value exceeds this limit, partial relief is available. The amount exceeding the excluded amount will be added to the factored base year value.

For example, a family home has a factored base year value (FBYV) of $300,000 and a fair market value of $1,500,000. The excluded amount under Proposition 19 is $300,000 + $1,000,000 = $1,300,000. The difference, $1,500,000 – $1,300,000 = $200,000. Thus, the adjusted base year value is $500,000 (FBYV $300,000 + difference of $200,000).

https://www.boe.ca.gov/prop19/#FAQs

If you qualify for the new Prop 19 exclusion, you must file the appropriate forms with the County Assessor within the prescribed times.

Contact your local County Assessor’s office for additional questions and forms.

You can book a paid ($295) one-hour confidential legal zoom consultations with our office to address virtually all questions, options, tax implications and strategies. (Book a consultation here.)

– Devin Lucas

Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate.

Lucas Real Estate – Attorney Devin Lucas and CPA Courtney Lucas – are experts in California intra family transfers using all aspects of Propositions 13, 58, 193, 60, 90 and new Proposition 19. Learn more about how Lucas Real Estate may help your family transfer by clicking here.

Questions? – Paid one-hour confidential legal consultations are conducted daily via Zoom and address virtually all questions, options, tax implications and strategies. (Book a consultation here.)

Lucas Real Estate
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Sources: California Board of Equalization. https://www.boe.ca.gov/prop19/#FAQs

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