A Horse of a Different Color

“The biggest mistake I ever made was giving up my low tax base,” the woman said, as she walked through the Open House on Sunday. “I already used my transfer when I sold my Berkeley home last year, and moved to Jack London Square, but I miss having a house, and this one would be perfect.”
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“Well, I said, I’m not a CPA (nor does my license qualify me to give tax advice), but I'm fairly certain you can now carry your tax base with you more than once.” ​

You can? she said.

"Yes," I replied, "you can," and then I pulled up the information on my phone and showed it to her.

In fact, Proposition 19, voted into law in 2020 and enacted in 2021, allows people over the age of 55 - and those with disabilities - to carry their tax base with them up to THREE times. More importantly, Homeowners can transfer that base into ANY county in California. That's a huge improvement from the previous rules, which only allowed Sellers to realize these savings once, and only in reciprocating counties which were few and far between. 

“Well now, that’s a horse of a different color,” she said with delight. “I’m going to talk to my Agent when I get home." (Better yet, speak with your CPA or tax advisor.) 

That being said, Prop. 19 isn’t entirely a free pass, nor is it a freeze regarding your tax base. While there's no strict value limit on the replacement home, if your new home is more expensive than the departing residence, the difference will be added to the transferred tax base. (Disaster victims can make multiple transfers per disaster event.) But if you’ve made a lateral move, or have bought down -- "winner, winner, chicken dinner" — you get to carry your current assessed tax base with you! 

This is great news for Homeowners who’ve held their homes for decades, and feel none too happy about the idea of paying more for less, OR for the woman in my example above, who mistakenly believed it was a "one-and-done" opportunity.

Historically, Proposition 13 originally set the lower tax assessment framework back in 1978, which seemed like a win for seniors, but it also had unintended consequences (like gutting school funding). Chief among them was that it essentially trapped people in their homes — even when they had become too large or too burdensome to maintain, as it didn't allow Sellers to transfer their lower tax base to a replacement property. Consequently, people stayed put, adding to the LACK of available inventory the market continues to experience decades later. (The market has more demand than supply, and that drives prices UP!)

Proposition 13 established a maximum 2% annual tax assessment -- regardless of how much the market value actually rose — which kept property taxes artificially low for property owners over the age of 55. These lower taxes remained in effect until the property was sold, OR experienced a significant change in ownership, OR underwent new construction.

Thus, Proposition 19 came to be, which makes it possible for the elderly to make a change if they are so inclined WITHOUT the additional burden of higher property taxes. (By "elderly" I mean me.)

Given that most of these long-time Homeowners paid off their mortgages years ago, they're often all-cash Buyers, so the higher interest rates have little bearing on their replacement property. Still, there are a fair number of people who remain in their GREAT BIG DILAPIDATED homes who probably should buy down and simplify, but don't. (That's a mistake.)

Besides the unfounded fear of higher taxes, what else prevents them from doing so?

Putting aside capital gains, which can often be significant (and is an entire column of its own), nostalgia, memories, familiarity, community connections, financing, and good old-fashioned inertia keep many people chained to their properties. Moreover, it can be a gargantuan chore to move, especially if you've lived in your home for decades and have accumulated, stored, and gathered a lot of "stuff." In short, a move can be overwhelming, both emotionally and physically. (That's where we come in.)

We're in the midst of helping a woman move who has owned her home for more than 35 years and now lives out of state. It took a crew of six men, two full days, 175 boxes, and one dutiful daughter flying cross-country to oversee the packing. (Thank you.) Among the books, games, photo albums, furniture, and clothes, there were birth certificates, tax returns, passports, jewelry, make-up, ribbons, wrapping paper, canned goods, a baby grand piano, Christmas decorations, and a lifetime of living that had to be sorted through rather quickly by someone who knew what to keep and what to toss.

With a few phone calls, a lot of elbow grease, and tremendous goodwill, the move happened in short order. The hauler arrived the following day to take away the rejected, worn-out, and discarded contents. With a cleared-out property, our teams can now begin the next phase, which includes repairing, painting, sanding, refinishing, gardening, cleaning, and staging. All in all, we'll spend about five weeks getting this sweet home ready for the market (and it's going to be adorable).

Having made the difficult decision to depart and sell, the transfer of this beloved home will allow the Owner to move on and finance her next exciting chapter, secure in the knowledge that we'll take care of everything on this end. (Change can be a good thing.)

When we work together, we can accomplish the seemingly impossible. Saddle up!

How can we help you?