Do I have to buy a cheaper home to keep my California property tax base?

4 min read

A lot of longtime owners believe the only way to keep a low property tax bill after selling is to move to something much cheaper. That belief keeps people in houses that no longer fit them. It also isn't what the law says.

Proposition 19 lets a homeowner who qualifies take the old home's taxable value to a new home anywhere in California. The new home can cost more. What changes is how much of the new price gets taxed.

Who the transfer is for

The transfer is open to a homeowner who is 55 or older, severely and permanently disabled, or a victim of a wildfire or governor-declared natural disaster. Only one of those has to be true, and it has to be true on the date the old home is sold. The old home must have been the owner's principal residence, meaning the kind of home that qualifies for the homeowners' exemption. There is no minimum number of years you had to live there. The Prop 19 base year value transfer guide covers the full list of conditions.

The limit the new price is measured against

The California Board of Equalization (BOE) compares the new home's market value to the old home's sale price, adjusted for when the new home was bought.

If the new home is bought before the old one sells, the limit is the old sale price. If it is bought within the first year after the sale, the limit is the old sale price times 1.05. If it is bought in the second year, the limit is the old sale price times 1.10. Past two years, the transfer is not available.

At or under the limit, the old taxable value moves over with no change.

What happens above the limit

Above the limit, the transfer does not disappear. The old taxable value still moves over, and the amount by which the new home exceeds the limit is added to it.

BOE's own example uses a home sold for $400,000 with a taxable value of $100,000. The replacement is bought in the first year after the sale for $600,000. The limit is $420,000, which is the $400,000 sale price times 1.05. The new home is $180,000 over that limit. Add $180,000 to the old $100,000 and the new taxable value is $280,000, not $600,000.

So the owner in that example paid $200,000 more for the new house and ended up with a taxable value $180,000 above the old one, not $500,000 above it.

A sideways move, not just a smaller one

The same arithmetic works when the new home costs about what the old one did. Selling for $1,600,000 and buying a $1,600,000 home within the first year is over the limit by nothing, so the old taxable value moves over unchanged. The owner lands in a new house of the same value, in any California county, on the old tax value.

Whether that is worth doing depends on things the transfer does not touch. Capital gains tax on the sale is a separate matter, covered in the guide to capital gains on selling a California home. Voter-approved bonds and special taxes such as Mello-Roos are charged on top of the taxable value, so a new home in a Mello-Roos area can carry a bigger bill than its taxable value suggests.

The claim is yours to file

None of this happens automatically. BOE says the claim is filed with the assessor of the county where the new home is, after both the sale and the purchase have closed and the owner lives in the new home. It is not handled through escrow. BOE's filing table gives three years from the date the replacement home is bought or finished being built. The steps are laid out in how to file the Prop 19 claim.

Before you decide

The numbers above come from BOE's published rules, and the rules can change. A CPA or attorney can confirm how they apply to a specific sale and what the sale does to the income tax picture. An estimate of the new taxable value, based on your own figures, is the starting point for that conversation, and a realistic sale price for your current home, from the home value tool, is the first of those figures.

Quick questions

Source: California Board of Equalization, Proposition 19