In much the same way that Prop 15 addresses unintended consequences of California’s commercial property tax system, Prop 19 reforms residential property taxes.
For starters, Prop 19 closes the so-called “Lebowski Loophole,” which allows Californians who inherit property (of any kind) from their deceased parents or grandparents to inherit their dead relatives’ low property taxes as well (this was not part Prop 13, but actually created by another initiative, Prop 58, in 1986). Under Prop 19, this exemption only applies to the deceased property owner’s primary residence (not rental or commercial property). The revenue generated by closing this loophole would be allocated among a fire protection services fund and local governments.
Prop 13 also creates disincentives for homeowners to move (because whatever new home they purchase will likely be assessed at a higher value than the old one). Current law allows the transfer of property tax basis for people over 55, disabled, or wildfire victims, but only within the same county or between counties which have reciprocating agreements, and only for new homes which cost less than the selling price of the old home.
The current system does not help homeowners who want to move to a more expensive area, or to a non-reciprocating county. When it’s hard for people to move, it makes housing less available to Californians in general. For example, empty-nesters who might otherwise downsize and sell the house they raised their kids in to another family instead stay where they are to avoid a hike in their property tax bill.
Proposition 19 addresses this problem by allowing certain homeowners (those over 55, disabled, or wildfire victims) to transfer the tax basis of their primary residence to a replacement residence anywhere in California regardless of the purchase price of the new residence.
Prop 19 makes California’s property tax system more uniform, removes some of the current perverse incentives, and, according to the Legislative Analyst, manages to slightly increase property tax revenue overall. While not as earthshaking as Prop 15, Prop 19 also helps create a more rational tax system worth of the country California may someday be. We recommend a yes vote.