Home Prices

Prop. 19 Could Shake up Residential Real Estate

While Proposition 19 focuses primarily on homeowners, experts say renters could also feel the impact

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When it comes to taxes and residential real estate, Proposition 19 offers a give-and-take approach.

On one hand, it could benefit homeowners over the age of 55 who want to move and take their current property tax basis with them. Prop. 19 would allow older homeowners to do this up to three times and if they purchase a more expensive home, they’d only pay for the upward adjustment.

But it's the flip side of Prop. 19 raising the most controversy.

Under current law, you inherit the same property tax basis on homes passed down by relatives.

Under Prop. 19, those taxes would be adjusted to market rate if you don't keep the inherited home as a primary residence.

"If a family inherits property, say from mom and dad, and they convert it to a rental, their property taxes are going to go up," said Mark Goldman, a loan officer with C2 Financial Corporation.

Property taxes would also increase on more expensive homes, typically ones that have appreciated more than $1 million since purchase, regardless of who lives there.

"It's going to force heirs to not be able to afford a home that perhaps was the family home they grew up in,” said real estate agent Mary Lawler. “Instead of being able to take over mom’s home when she passes away, they won’t be able to afford it because of the huge uptick in property taxes."

The uptick in new taxes would be substantial for California, based on an aging population of homeowners.

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“California is going to see a huge number of properties that are going to be inherited because almost 1/3 of the homeowners are over 65," said Anurag Mehropra, an assistant real estate professor at San Diego State University’s Fowler College of Business.

Residential real estate experts are mixed on what Prop. 19 could mean for overall home affordability in California.

"It creates more movement, which creates more inventory, which could help to soften the rise of home prices here in California," said Goldman.

But, Mehropra said Prop. 19 could hurt renters if property heirs keep homes as investments and have to pay higher taxes to the state.

"That increase is going to be passed on to consumers, so rental prices of homes or rentals in the state of California are going to go up if this proposition gets approved," Mehropra said.

The California Association of Realtors conceived the measure and is a major backer, but not all real estate agents are on board.

"Great for realtors, but not so great for someone who would like to stay in San Diego and be able to live in the family home they grew up in," said Lawler.

A similar bill was put forward two years ago and rejected by voters.

Pro.p 19 was rewritten to gain more support and now includes earmarks for those who are wildfire/disaster victims and residents who are disabled.

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