Seniors and others who may have previously felt "stuck" in their homes, can now move without seeing a completely new tax bill. New taxes will only be due on the portion of the replacement property that exceeds the sale price of the currently taxed property.
Q. Can the replacement property can be of greater value?
A. Yes, subject to implementing legislation*. Proposition 19 has two provisions regarding the value of a replacement principal residence.
(1) Equal or Lesser Value: The replacement primary residence is of equal or lesser value, subject to an inflation index of 105% if purchased within one year of sale, and 110% if purchased within the second year of sale of the original property. The tax basis of the original principal residence may transfer to the replacement principal residence.
(2) Greater Value: The replacement residence is of greater value. The taxable value of the replacement primary residence is calculated by adding the difference between the full cash value of the original primary residence and the full cash value of the replacement primary residence to the taxable value of the original primary residence.
Ex: Original Primary Residence (OPR) taxable value . . . $400,000
OPR sold for . . . . . . . . . . . . . . . $900,000
Replacement Primary Residence
(RPP) purchase . . . . . . . . . . . . . . . $1,000,000
Difference between sale price of OPR
and purchase price of RPP is . . . . . . $100,000
Taxable Value of RPP is $400,000 plus $100,000… $500,000
*Proposition 19 allows the transfer of the existing taxable value of a primary residence to any primary residence "of equal or lesser value." This phrase "of equal or lesser value" has a defined meaning under current law as explained above and will likely be interpreted in exactly the same manner under Proposition 19. Implementing legislation should clarify the issue completely.