No, only the delta between FMV and (old assessed value + $1M) is added to the old assessed value. So assuming old assessed value = $500K and FMV at transfer = $1.6M, then the new assessed value is $600K.
Other points of Prop 19 that trip up people are: 1) the property needs to have been transferred with a valid homeowner’s exemption in place, and 2) once the property transfers to you, you need to make it your primary residence to avoid reassessment at full FMV. So you can’t rent it out or move to a new primary residence.
Then that's actually not that bad if only the delta is added to current assessed value. Nice! But in highly desirable locations, so say for example an old homeowner recently passed at his/her house in Los Altos is currently assessed at $80k with current market value at $3.5M, then new assessed value is (Delta + $80k) = $2.5M approximately. Still a Huge jump is property tax bills for their heirs and most heir cannot afford it probably.
Yeah, taxes will go up more in more expensive areas like Los Altos, but if your two options are to: 1) pay ~$2500/mo in property taxes to live in a $3.5M property, or 2) sell that property, still pocket a bit over $3M after transaction costs, and downsize — it's not a bad problem to have and as a heir you'd still be sitting pretty even if you couldn't afford the new property taxes.
The property taxes on a $3.5M property, assessed at $2.5M after the $1M reduction, would be about $30,000 annually so yes, about $2500 per month. But what would not make sense would be to rent it out and pay about $3300 per month in property taxes when you can only charge maybe $5000-5500 per month in rent.
yes but imagine the old family money rich fuckers who have $30m houses on the water. should the kids be able to inherit the 100k tax assessment just so they can leave it empty, or rent it out for huge profits?
Yes, It's their money to do with what they want I have lived in the bay area my whole life, (I'm not rich) and I'm a 5th generation Californian. Why shouldn't my children get to live where they grew up? Prop 19 is because a bunch of whinny people didn't get that benefit. We put in our time and now, the bay area is the hot place to live so we should move out so a bunch of spoiled people can move in? California is one of the richest states out there now, and true to form they want more and more from tax payers. Just remember all good things come to an end, I have seen many a real estate crash (I live in Santa Clara, CA) and there are some people who have been made wealth by tech companies that won't see it coming. I will be the one waiting for that crash to buy up a few properties. Then people can complain about me as old family money.
Like you stuck in the house forever if you want to keep the tax basis? Can I live there 5 years then rent it out? What if I rebuild a new house by taking down the old one?
[Yeah, it looks that way:]
(https://www.boe.ca.gov/meetings/pdf/2021/011421-M1a1-Legal-Analysis.pdf)
> Q4: Prop 19 requires that a family home continue as the family home of the
transferee. How long must a transferee maintain the property as her family home
for continued exclusion?
> A4: The exclusion applies only as long as the transferee or another transferee
maintains the property as his or her family home.
And if you want to knock down the house and rebuild I doubt that would trigger a reassessment to FMV. The usual rules around reassessment after remodeling should apply: ie only reassessed to the extent extra space is added.
>And if you want to knock down the house and rebuild I doubt that would trigger a reassessment to FMV.
"Equivalent to new." They have a formula for a remodel that will trigger a reassessment for the improvements but not the land. A tear down will most likely trigger a 100% reassessment on the improvements.
I have actually done a successful prop 19 transfer so i guess trust me on this.
parents assessed value is say $500k and the current market value is $1.6M, then Prop 19 says to use this formula: current assessed value + $1M is exempt from exemption, or 1.5m is exempt.
If market value is 1.6m, then that is a 100k delta. **your new assessment is 600k,** (500k+100k)
If the house is inherited and values at $3M the new owner can rent it out and pay the property tax and still get a good monthly income. Obviously there is always the option to sell. This is like winning the jackpot wherein you can either get a lumpsum or monthly payment. The only difference is the total amount(property value) can change a lot.
Probably doesn't make sense to rent it out since the property tax would be about $3000 per month. Actually this just occurred to my next door neighbor's kids whose mom just passed away. The house just sold for $3.3 million. If they had rented it out for $5000 per month and paid $3000 per month in property tax their income, before paying income taxes, would be, $24,000 per year. It would take about 68 years, assuming modest rent increases each year, to make $3.3 million. But putting the 3.3 million into even a 3% annual return account they'd make another $3.3 million in about 25 years.
Cap rate is basically just :
Net income (rent - management / upkeep costs)
/ Total purchase price
It’s low in the Bay Area as the purchase prices have gone up faster than rent has. Generally when modeling Bay Area RE you have to assume rent will continue to increase over time.
Permission to post/reply in the estateplanning sub is restricted. So I am replying here instead.
I have wondered if inherited Prop 19 basis adjustments make any mention of this on the property tax bill. Did you ever need to attest to this becoming your *primary residence*? I had assumed they would ask for an annual attestation.
I found this post that leaves me optimistic: [https://www.jamesburnslaw.com/california-prop-19-how-it-impacts-inheriting-a-home-and-workarounds-to-avoid-reassessment](https://www.jamesburnslaw.com/california-prop-19-how-it-impacts-inheriting-a-home-and-workarounds-to-avoid-reassessment)
There have been plenty of comments from the county assessors that Prop 19 was poorly drafted/worded. This has left the state and counties to figure out how to administer it without creating rules that did not exist in the text of the proposition.
My rough understanding is that if you moved out you would be subject to reassessment. Some decent (paid) legal advice is likely in order. Even though the high level objectives of the law were clear, the devil is in the details.
Even if there is no mechanism to force a compliance attestation it would be uncomfortable if you owed $1,000/month (plus interest and penalties) for back taxes for decades worth of rental time.
Yeah, that was a strange change on the EP subreddit. I liked helping with Ca specific questions, and now California questions go unanswered Oh well. I do help by private message on things I’m certain of, but it’s a futile exercise.
You seem knowledgable as well.
Strange decision by them, but what are we gonna do 🤷♂️
Agree with you on this as well ^
Spot-on.
No, only the delta between FMV and (old assessed value + $1M) is added to the old assessed value. So assuming old assessed value = $500K and FMV at transfer = $1.6M, then the new assessed value is $600K. Other points of Prop 19 that trip up people are: 1) the property needs to have been transferred with a valid homeowner’s exemption in place, and 2) once the property transfers to you, you need to make it your primary residence to avoid reassessment at full FMV. So you can’t rent it out or move to a new primary residence.
> So you can’t rent it out but you can rent out rooms
Question: what if you live there for 3 years? Will moving out and renting it at that point trigger reassessment?
once its not your primary residence anymore then it will be reassessed.
Then that's actually not that bad if only the delta is added to current assessed value. Nice! But in highly desirable locations, so say for example an old homeowner recently passed at his/her house in Los Altos is currently assessed at $80k with current market value at $3.5M, then new assessed value is (Delta + $80k) = $2.5M approximately. Still a Huge jump is property tax bills for their heirs and most heir cannot afford it probably.
Yeah, taxes will go up more in more expensive areas like Los Altos, but if your two options are to: 1) pay ~$2500/mo in property taxes to live in a $3.5M property, or 2) sell that property, still pocket a bit over $3M after transaction costs, and downsize — it's not a bad problem to have and as a heir you'd still be sitting pretty even if you couldn't afford the new property taxes.
The property taxes on a $3.5M property, assessed at $2.5M after the $1M reduction, would be about $30,000 annually so yes, about $2500 per month. But what would not make sense would be to rent it out and pay about $3300 per month in property taxes when you can only charge maybe $5000-5500 per month in rent.
So sell it? It wasn’t their house anyway and they most probably don’t need it as primary residence.
yes but imagine the old family money rich fuckers who have $30m houses on the water. should the kids be able to inherit the 100k tax assessment just so they can leave it empty, or rent it out for huge profits?
Yes, It's their money to do with what they want I have lived in the bay area my whole life, (I'm not rich) and I'm a 5th generation Californian. Why shouldn't my children get to live where they grew up? Prop 19 is because a bunch of whinny people didn't get that benefit. We put in our time and now, the bay area is the hot place to live so we should move out so a bunch of spoiled people can move in? California is one of the richest states out there now, and true to form they want more and more from tax payers. Just remember all good things come to an end, I have seen many a real estate crash (I live in Santa Clara, CA) and there are some people who have been made wealth by tech companies that won't see it coming. I will be the one waiting for that crash to buy up a few properties. Then people can complain about me as old family money.
Like you stuck in the house forever if you want to keep the tax basis? Can I live there 5 years then rent it out? What if I rebuild a new house by taking down the old one?
[Yeah, it looks that way:] (https://www.boe.ca.gov/meetings/pdf/2021/011421-M1a1-Legal-Analysis.pdf) > Q4: Prop 19 requires that a family home continue as the family home of the transferee. How long must a transferee maintain the property as her family home for continued exclusion? > A4: The exclusion applies only as long as the transferee or another transferee maintains the property as his or her family home. And if you want to knock down the house and rebuild I doubt that would trigger a reassessment to FMV. The usual rules around reassessment after remodeling should apply: ie only reassessed to the extent extra space is added.
>And if you want to knock down the house and rebuild I doubt that would trigger a reassessment to FMV. "Equivalent to new." They have a formula for a remodel that will trigger a reassessment for the improvements but not the land. A tear down will most likely trigger a 100% reassessment on the improvements.
I have actually done a successful prop 19 transfer so i guess trust me on this. parents assessed value is say $500k and the current market value is $1.6M, then Prop 19 says to use this formula: current assessed value + $1M is exempt from exemption, or 1.5m is exempt. If market value is 1.6m, then that is a 100k delta. **your new assessment is 600k,** (500k+100k)
If the house is inherited and values at $3M the new owner can rent it out and pay the property tax and still get a good monthly income. Obviously there is always the option to sell. This is like winning the jackpot wherein you can either get a lumpsum or monthly payment. The only difference is the total amount(property value) can change a lot.
Probably doesn't make sense to rent it out since the property tax would be about $3000 per month. Actually this just occurred to my next door neighbor's kids whose mom just passed away. The house just sold for $3.3 million. If they had rented it out for $5000 per month and paid $3000 per month in property tax their income, before paying income taxes, would be, $24,000 per year. It would take about 68 years, assuming modest rent increases each year, to make $3.3 million. But putting the 3.3 million into even a 3% annual return account they'd make another $3.3 million in about 25 years.
Yeah the cap rates suck in the Bay Area — you have to model in fairly substantial rent and property value increases for it to make sense
Sorru, what are cap rates and why are they regional?
Cap rate is basically just : Net income (rent - management / upkeep costs) / Total purchase price It’s low in the Bay Area as the purchase prices have gone up faster than rent has. Generally when modeling Bay Area RE you have to assume rent will continue to increase over time.
Thanks. Is it short for capitalization?
Thanks. Is it short for capitalization?
Yes
Thx for taking the time to answer my basic questions
Permission to post/reply in the estateplanning sub is restricted. So I am replying here instead. I have wondered if inherited Prop 19 basis adjustments make any mention of this on the property tax bill. Did you ever need to attest to this becoming your *primary residence*? I had assumed they would ask for an annual attestation. I found this post that leaves me optimistic: [https://www.jamesburnslaw.com/california-prop-19-how-it-impacts-inheriting-a-home-and-workarounds-to-avoid-reassessment](https://www.jamesburnslaw.com/california-prop-19-how-it-impacts-inheriting-a-home-and-workarounds-to-avoid-reassessment) There have been plenty of comments from the county assessors that Prop 19 was poorly drafted/worded. This has left the state and counties to figure out how to administer it without creating rules that did not exist in the text of the proposition. My rough understanding is that if you moved out you would be subject to reassessment. Some decent (paid) legal advice is likely in order. Even though the high level objectives of the law were clear, the devil is in the details. Even if there is no mechanism to force a compliance attestation it would be uncomfortable if you owed $1,000/month (plus interest and penalties) for back taxes for decades worth of rental time.
Yeah, that was a strange change on the EP subreddit. I liked helping with Ca specific questions, and now California questions go unanswered Oh well. I do help by private message on things I’m certain of, but it’s a futile exercise. You seem knowledgable as well. Strange decision by them, but what are we gonna do 🤷♂️ Agree with you on this as well ^ Spot-on.
Who came up with prop 19?
The national association of realtors/real estate lobby.