California Tax Boon Granted By Voters Sees Rush Of Pre-Deadline Interest
California voters have approved Proposition 19, which allows homeowners over 55, disabled homeowners and wildfire and natural disaster victims to blend their primary residence’s tax base with that of a replacement residence. As of Monday, 51.1% of voters were in favor of the measure, with 96% of precincts reporting, and the Associated Press called the race on Nov. 11.
It also ends a tax break that allows children who inherited homes to also gain the property taxes their parents paid, even if the house is not used as their primary residence. If there was a worry that the changes the proposition would bring are slowing down transactions as people wait for them to go into effect, Greenberg Glusker's Marc M. Stern said so far, that hasn't been the case.
"If anything, because of the deadline, people are accelerating transactions to get them done before then," said Stern, a partner in Greenberg Glusker’s estate planning department.
Stern said people are cognizant of the fact that they used to be able to transfer their property to their kids without a reassessment of that property's tax, and that's going to go away in mid-February.
People also hurried to finalize their transactions before the end of the year because they were worried about an electoral sweep for Democrats in state and federal elections, and many ended up getting "a bang for their buck" because those swift transactions will also come in under the buzzer for Prop. 19 changes.
The deadline for parent-child transfers to be complete is Feb. 16, 2021. Anything on or after that date will be subject to the new rules governing those transfers. The date that the expanded benefits for homeowners moving to a new, potentially more expensive home kick in April 1, 2021.
The California Association of Realtors co-sponsored the measure, along with California Professional Firefighters. In a pre-election endorsement of the proposition, CAR said that it "will open up tens of thousands of housing opportunities, making homes more readily available for first-time homeowners, families and Californians throughout the state."
Supporters spent nearly $47M on the campaign to pass Prop. 19, with about 85% of that spent by the California Association of Realtors and its issues mobilization PAC.
Proponents of the measure painted a picture of wealthy, out-of-state heirs paying decades-old, four-digit property tax bills on inherited homes that they didn't even live in while locally based, middle-class families were paying property tax bills that were 10 or 20 times higher because they didn't have the good fortune to inherit a house.
An estimate from the state legislative analyst said local governments could stand to gain "tens of millions of property tax revenue per year" and estimated similar gains for schools via those increased property taxes as well. But whether that will actually lead to a rush of sales and revenue will take time to appear to market watchers.
"It will take a while to see the impacts," USC Lusk Center for Real Estate Director Richard Green said. People may be rushing to finalize transactions that were in progress or were getting underway, but that is not the same as spurring new sales.
Nourmand & Associates Realtors President Michael Nourmand says he has two transactions in progress now for sales that will not close escrow until April, when the buyers will be able to reap the benefits that Prop. 19 provides.
Delaying closing escrow for months isn’t for everyone, Nourmand said: If a seller needs to sell in order to buy their next house, they aren't going to have the freedom to delay closing escrow. But if that's what a buyer is hoping to do, they might as well ask.
"If you‘ve found a house you like and you can buy it now, why not do it and try to make the transaction work?" Nourmand said.