Proposition 19 update since our last video including frequently asked questions you won't want to miss. Hey there, Christian Walsh, Kobo Banker, Wire Associates. We are real estate brokers based in Southern California helping buyers and sellers and tenants and landlords throughout California and beyond and we're here with another Proposition 19 video. We did one as soon as Proposition 19 was passed back in November and now we're here with an update. We've got some answers to questions with clarification from the board of equalization talk about exciting stuff including a very important question about whether both the purchase and sale need to happen after April 1st 2021 and what needs to happen first a buy a sell we're gonna explain And make sure you stick around to the very end where we talk about this California property tax exemption for those age 55 and older and how to take advantage of it in this currently crazy real estate market.
By the way, if you are looking for the latest tips and trends for California buyers and sellers, make sure you subscribe to this channel. A few more important things to remember. I can't give tax or legal advice like I always say.
And in this video, Proposition 19 covers property taxes. not income taxes. That's a different topic. We'll bring lots more content for that topic. So if you're ready, do me a favor, hit that like button and let's get started.
The California Property Tax Initiative for 2020, as Proposition 19 is also known as, had three important parts when it was passed in November 2020. So the first important part is what this video is about, and that is, Property tax transfers and those who are considered seniors 55 plus although 55 plus doesn't seem all that senior these days it also covers the severely disabled and it covers victims of wildfires and natural disasters so that's what this video covers and that's one section of Proposition 19 the second part of the bill was about the inheritance of property and the passing amongst family members and how this affects property taxes in the state of california and this went into effect on february 16 2021 this part of the bill we have more content coming to cover this portion but as of right now we're talking about section one the third important thing that the bill created is the california fire response fund that's included in the bill as well how does prop 19 work with prop 13. so as we've discussed in other videos and we'll bring more videos out on this 1978 in the state of california prop 13 was passed and what it does is it pegs property taxes based on the value of the sale of the property at the time it sells and property taxes can only go up about two percent each year this leads to a big disparity between values and the amount of property tax paid on real estate in california and don't forget prop 13 covers all real estate so whether it's something you're buying to live in it's an investment property commercial property anything real estate related, Prop 13 effects. Here is a crazy real world example, we've run through this before, about what happens with property taxes over time in the state of California. So Warren Buffett bought a home in 1971 for 150,000 in the beautiful seaside local community of Emerald Bay in Laguna Beach, it's not too far from where I am right now. So he went ahead and paid 150,000 in 1971. Subsequently sold that property in 2018 for almost $7.5 million.
So that was a big increase in value. At the time of sale, according to the tax assessor's office, his home was worth about $286,000. And that meant that his annual property taxes were $2,900.
The new owner, who had a property worth about $7.5 million, their taxes for the year were over $75,000. So this shows you the big disparity that happens over time. Prop 19 allows a homeowner on their primary residence to bring their property tax basis with them.
So that means that Warren Buffett, if that had been his primary residence and he bought another home in California as a primary residence for $7.5 million, he could have brought his $2,900 in annual property taxes with him. Prop 19 expands on Proposition 60 and 90. And what 60 and 90 allowed in certain counties in the state of California, you could bring your property tax bases with you when you sold. Here's the thing, it only covered about 10 counties in the state of California.
Prop 19 covers all 58 counties. You can sell in any one and bring it. to any other in the state of California.
Let's run through some frequently asked questions. Do you need to buy or sell first? The answer is you can do either.
All that matters is the two-year gap. You need to make sure that the base value is transferred within two years. This means you could sell your primary residence and buy something immediately and transfer the base value or go ahead and wait.
You could rent or take some time as long as you transfer within two years. The other thing you could do is buy your next primary residence and then immediately sell your current primary residence or wait as long as you sell your current primary residence within two years you can then transfer that base value to the property you bought so you can do either or you can buy or sell first and you can wait or immediately do the other here's a big one we got a lot of questions and there wasn't guidance right as soon as the bill passed and It hasn't come out until recently. The Board of Equalization issued guidance to let us know whether the buy and sell have to happen after April 1st, 2021. And the answer is no, they don't both have to happen after April 1st, 2021. So we have a link below so you can look at the clarification from the BOE, but what it states is as long as the second part happens in 2021 after April 1st, you're good to go as long as the base value is transferred then so that means that you could sell and then buy after april 1st or buy and then sell after april 1st so this is very important you can get the process started we're filming this in the beginning of march you can get that process started right now as long as the second part happens after april 1st 2021. what if you already took advantage of prop 6090 you've done this once already Does that mean you lose one? Nope. Just like a genie coming out of the bottle, you get three times that you can use this.
So even if you've taken advantage of Prop 6090 and done a transfer already, you get to start over. You get three more. So that's also from the Board of Equalization.
Who can take advantage of Prop 19 in the state of California? And the answer is those who are 55 or older, and that's one or both spouses. The severely disabled and victims of wildfires or natural disasters. Which properties qualify for the California Property Tax Initiative of 2020?
The answer is only residential and only your primary residence. Properties must be eligible for the homeowner's exemption or the disabled veteran's exemption. And you can reach out to the assessor's office for more information on those.
But those are the only properties that are eligible. long as they're anywhere in California any County but it must be residential and a primary residence is there a limit on the purchase price of the new property the answer is no not under prop 19 now prop 6090 there was a limit you can only move up so much in value from the previous home that you sold but there is no limit in prop 19 you do have to calculate a new property tax base value based on the new value if the replacement property has a a higher value and we've run through this these numbers before in our last video and we'll have more content coming but the short answer is no limit sky's the limit buy anything you want go as big as you want with prop 19. so we told you if you stuck around to the very end we tell you how to strategically use the california property tax exemption for those age 55 and older and this is it as of filming this video in march of 2021 it is a crazy crazy seller's market So right now there's not enough inventory and interest rates are crazy low. Anybody who has something to sell is getting multiple offers and it's getting bid up crazy numbers. So this is what someone who's 55 or older should do or at least consider right now. And of course we can help you out.
Make sure you reach out to us to help you run through this strategy. But basically list your home for sale right now. Cash in when the market's hot.
And you can set a record price for your home. Here's the good news. You have two years to buy another property and transfer your property tax basis.
So my advice, find a rental. We can help you find someplace to move in, maybe travel around the world, travel around the country. Now I know there's still COVID, but you get my point.
Basically, you're going to move into another property. You're going to have your piles of money sitting in the bank. So as the clock is ticking, you're going to watch carefully. When 18 months comes around, you're going to go ahead and start looking for another property.
Now, nobody knows for sure where values will be in 18 to 22 months, but it's pretty good guess. that values will not have gone up significantly and may have turned a little bit the other way. So now you'll be in position to buy, maybe get a better deal at that point in time. And as long as you acquire that next property and under that two year mark, you can bring your property tax basis with you. So that's a hot strategy that we recommend at least considering right now in March 2021. and find down the road the home that you want to live in.
Now let's say this doesn't work out. Let's say the home you buy in 18, 20, 22 months doesn't quite fit your needs. Here's the good news. Prop 19 allows you to do it two more times to get to that home that ultimately works for the rest of your life.
So that's the other good news in this bill is you don't have to do it one and done like Prop 6090. You get a total of three chances. Leave your comments below if you have any other questions about proposition 19, of course, let us know your success stories We want to hear about that and don't forget that we can help you as well If you want to take advantage of prop 19 and sell and buy or buy and sell We're real estate brokers based in Southern California We can help you in Orange County and we'll find an agent somewhere beyond if you need help elsewhere in California We'd love to have you subscribe to our free weekly email newsletter. There's a link below so you can do that You We cover topics like Proposition 19, other propositions, relevant topics for tenants and landlords, and market updates for buyers and sellers, and a whole lot more.
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This is Christian Walsh, Kobo Banker Wire Associates, and we appreciate you.