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Real EstatePolitics & Money

Why CAR campaigned for California’s Proposition 19

Seniors, empty nesters, and those affected by wildfires are set to benefit the most

The passage of Proposition 19 in California — which will generate wildfire relief funds while providing tax breaks for senior citizens — was a victory for the California Association of Realtors, which lobbied for its passage and put real dollars behind the effort.

The bill is expected to add $2 billion to California’s coffers annually, and homeowners with disabilities, seniors looking to move for health reasons, and empty nesters looking to downsize could receive property tax breaks when buying a new home, CAR officials said.

But nothing is free, and the money generated by Proposition 19 comes from tax changes on inherited property.

Proposition 19 eliminated the ability of homeowners to transfer primary residential properties to their children or grandchildren without the property’s tax assessment resetting to market value if the property is being used as a rental house or second home. Even when the inherited property is being used as a principal residence, if it is sold for $1 million more than the property’s taxable value, the property assessment will increase.

This means some residents with inherited homes will see an increase in their property taxes and may find living in California increasingly unaffordable. Keeping inherited homes as rental properties, especially after California adopted state-wide rent control in January 2020, may become unprofitable as well.

But CAR, which supported the measure with $35.7 million, along with the National Association of Realtors, and the California Professional Firefighters, campaigned for the law given the windfall the state will receive because of it.

Becky Warren, CAR spokesperson for “Yes on 19,” said that funding earmarked for wildfire aid and senior citizen aid was a driving factor.

“It will help provide some relief to the state’s housing crisis, and help our vulnerable populations such as seniors, people with disabilities, and wildfire survivors be able to afford to move to a home that best fits their needs,” she said. “It will also provide dedicated new revenues, annually, to our communities — including wildfire relief funding, which helps our neighborhoods.”

Specifically, the law means those 55 years and older will be able to transfer the tax rate they pay on a current home to the next three homes they purchase, resulting in property tax savings that could reach thousands of dollars a year, state officials said. It will also increase housing churn as older Californians will no longer be afraid to lose their favorable tax rate.

“Based on the significant interest seen since the measure was supported by voters, we believe many seniors trapped in their homes will be able to now move to smaller homes closer to their families,” Warren said. “That will then increase available housing, which we need now more than ever.”

The expected open unit increase was highlighted by several California-based Realtors, who all agreed that demand is higher than available inventory.

“I work with first-time buyers throughout the county, and the majority of my clients are military and using their VA loans, so they don’t have a lot of liquidity,” said Alanna Strei, a California-based Realtor who said she has a “backlog” of first-time buyers looking to get into a home. “The more inventory available, the more they are able to compete with cash buyers and investors who snap up all the ‘good deals’. And allowing elderly, disabled, and those displaced by natural disasters to carry their tax basis with them across the state just makes sense.”

“[Passing Prop-19] is a game-changer,” added Monique Bryher, a broker-associate and Realtor in California. “Both in terms of properties being sold that would have been passed on through a family trust, or by the beneficiaries who decide they either can’t afford to pay property taxes based on a current assessed value, or just don’t want to pay the higher property taxes. The state’s going to make a lot of money.”

Educating the public on the ways to use Prop 19 to their benefit is crucial, Strei said. For example, senior citizens don’t have to “succumb to a reverse mortgage” and can instead sell their home and retain equity, she said. 

“They can use a portion of it to buy a smaller property appropriate for their current life circumstances, while maintaining their tax basis and being able to make their payments,” she said. “It is CAR’s job and our job as Realtors to continue to educate people who may have felt ‘stuck’ for decades as home prices have increased so dramatically.”

Wildfire-relief funding generated by the law is not expected to be dispersed until 2025, according to the Los Angeles Times. 

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