Property Tax Transfers
The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disaster Act
Allows seniors, disabled people and disaster victims to transfer existing property tax assessments to a new home.
What the Measure Would Do
Proposition 19 aims to accomplish three goals:
- Allowing certain categories of homeowners — seniors, people with disabilities and disaster victims — to take their low property tax assessments with them if they move within California
- Limiting the transfer of property tax assessments to children or grandchildren
- Generating revenue to fight fires
Since 1978, Proposition 13 has kept the amount of tax that longstanding property owners pay artificially low relative to the current value of the property and has allowed these reduced tax bills to be transferred to children or grandchildren who inherit the property — significantly hampering the state’s ability to raise money for critical needs. At the same time, the property tax system has not worked to all homeowners’ advantage: Those with limited means, including those who have lost their homes in natural disasters, face difficulty relocating within the state because their property tax assessments will likely rise dramatically once they purchase a new home.
First, Prop. 19 would make it easier for some owners to transfer their property tax assessment anywhere in the state (current law only allows these transfers within a county). Eligible owners include those over 55, those who are severely disabled and those who are victims of wildfires or other natural disasters.
If the market value of the new property that the owner purchases is greater than the market value of the old property, then the difference would be added on to the taxable assessed value of the old property. If the value of the new property is less, then the assessment for the old property would just be transferred to the new property. Prop. 19 would allow a property owner to transfer their low property tax up to three times.
Second, Prop. 19 would limit the transfer of low property tax assessments from deceased owners to their children or grandchildren (if all of their children have already died), which current law allows. The measure would close the “Lebowski Loophole” (named after an actor in The Big Lebowski who pays very low property tax on a Malibu property his parents purchased in the 1950s).1 Under this measure, only heirs who use the home as a primary residence would be able to transfer a property tax assessment. And if the home’s market value exceeds the assessed value by more than $1 million, the heirs would only inherit the reduced property tax basis on the first $1 million.
Third, Prop. 19 would take the revenues created by more fully taxing intergenerational property transfers and use them to fund fire reduction measures. The measure would establish a California Fire Response Fund, with 20% of funds allocated to the state Department of Forestry and Fire Protection and 80% to local special districts for fire suppression. This would likely benefit more rural areas, which have had to professionalize their volunteer fire services in the wake of the recent wildfires.
If there is a strong spike in revenue generated by Prop. 19 (more than a 10% increase in revenue year over year), then the excess funds could be appropriated by the state legislature for other purposes besides fire suppression.
The measure would also create a state County Revenue Protection Fund. If counties receive less revenue as a result of this measure, then the state would make up the difference through a distribution of these funds.
The Legislative Analyst’s Office (LAO) estimates that Prop. 19 would generate tens of millions of dollars in local tax revenue by the increase in taxes collected on inherited properties that do not serve as a primary residence. Over time, this revenue could grow to several hundred million dollars a year.2
In 1978, Prop. 13 capped property taxes at 1% of assessed value at the time of purchase and mandated that the annual inflation adjustment for property value be no more than 2%. Since property values in California have skyrocketed since the late 1970s at a rate far higher than 2% per year, Prop. 13 continues to result in artificially low tax rates throughout California.
One consequence of low property taxes is that it creates a disincentive for longtime owners to move or sell, even though their existing homes may be larger than they need as their grown children move out. The California Association of Realtors sponsored Prop. 19 after putting a similar measure on the ballot in 2018. That measure, Prop. 5, focused specifically on giving older and disabled property owners the ability to transfer their property taxes to new homes. However, since Prop. 5 would have resulted in reduced revenues for the state, counties, cities and schools, it was widely opposed and failed at the ballot by 20 points.
Prop. 19 sweetens the pot for local and state government by promising to close the Lebowski Loophole. It would also create funding to combat wildfires, thereby earning the endorsement of the state’s largest firefighting union.3
This measure was placed on the ballot by the California State Legislature, replacing a measure that was placed on the ballot by signature collection. It requires a simple majority (50% plus one vote) to pass.
This measure could benefit low-income communities and communities of color by providing additional revenue to state and local government. It would also flatten wealth inequality by requiring additional taxes when high-value homes are transferred from one generation to the next. The current system largely benefits wealthier households, which are more likely to own property and pass it on to children and grandchildren. It also disproportionately helps white people, given the racial gap in homeownership between Black and white households.4 While this measure would not do anything to remedy inequities in rates of homeownership, it would remove the subsidy children and grandchildren of wealthier homeowners, who are disproportionately white.
However, Prop. 19 could also put financial pressure on some low-income, high-wealth families seeking to transfer property to future generations in highly gentrified areas. A family home that was purchased in the 1970s in a low-income neighborhood by a low-income household would likely have a very low assessed value. But if that neighborhood has undergone significant gentrification, then the current value could be significantly higher than the original value, potentially beyond the million-dollar threshold, which would trigger an additional tax assessment that might be beyond the next generation’s ability to pay.
- Prop. 19 would eliminate a loophole that has allowed the children and grandchildren of original property owners to avoid paying market-value taxes on a property that is not their primary residence. It would also require those heirs to pay increased property taxes on a home worth more than a million dollars above the assessed valuation even if the home is their primary residence. This promotes fairness in the tax system.
- The measure might encourage some empty nesters to sell their large family homes in favor of smaller homes, thereby freeing up homes for larger families and potentially easing housing pressures in some areas of the state.
- Wildfires are an ongoing, catastrophic problem in California. This measure would provide more funding to address a critical issue at a time when it’s most needed.
- This measure would not address the underlying problems with California’s property tax system. Prop. 13 benefits longstanding homeowners and punishes newcomers. A more equitable tax system would require all owners to pay their fair share while ensuring that low-income households, including low-income seniors, could afford to stay in their homes. This measure would not get us closer to those reforms.
While Prop. 19 does feel like a grab bag of policies designed to support different interest groups (real estate agents who want to increase the number of real estate transactions, firefighters who want more funding to combat wildfires), on balance it would achieve important policy goals. The elimination of the property tax loophole for heirs would increase the fairness of California’s tax system and generate funding for combatting wildfires, an important public service. SPUR supports this measure.
1. Liam Dillon and Ben Poston, “California Homeowners Get to Pass Low Property Taxes to Their Kids: It’s Proved Highly Profitable to an Elite Group,” Los Angeles Times, August 17, 2018, https://www.latimes.com/politics/la-pol-ca-california-property-taxes-elites-201808-htmlstory.html
2. Legislative Analyst’s Office, “Proposition 19,” https://lao.ca.gov/ballot/2020/Prop19-110320.pdf
3. Editorial Board, “Prop. 19 Perpetuates California Property Tax Inequity,” San Jose Mercury News, August 1, 2020, https://www.mercurynews.com/2020/08/01/editorial-prop-19-perpetuates-california-property-tax-inequity/
4. “Reducing the Racial Homeownership Gap,” The Urban Institute, https://www.urban.org/policy-centers/housing-finance-policy-center/projects/reducing-racial-homeownership-gap