Prop 19 and Prop 13: What Bay Area Homeowners Need to Know in 2024

As we approach the fall season in the Bay Area, it's crucial for homeowners and potential buyers to understand the current property tax landscape. At the Oldham Group, we're committed to keeping our clients informed about important real estate matters across Santa Clara County, San Mateo County, and beyond. Let's dive into the key aspects of Proposition 19 and Proposition 13, two significant laws shaping California's property tax system, and explore how they impact our diverse communities from San Francisco to Monterey.

Proposition 13: The Foundation of California's Property Tax System

Proposition 13, passed in 1978, remains a cornerstone of California's property tax system. It offers several benefits to homeowners that have shaped the real estate market for decades:

Key Features of Prop 13

• Property taxes are capped at 1% of the assessed value
• Annual increases in assessed value are limited to 2% or the rate of inflation, whichever is lower
• Property is only reassessed when it changes ownership or undergoes new construction

This law has been particularly beneficial for long-term homeowners in areas like Palo Alto, Los Gatos, and Saratoga, where property values have skyrocketed over the years. For instance, a home purchased in Palo Alto in the 1980s for $200,000 might now be worth over $3 million, but the property taxes would still be based on the original purchase price plus modest annual increases.

Impact on Bay Area Communities

The effects of Prop 13 are visible throughout our service areas:

• In Silicon Valley cities like Cupertino and Mountain View, long-time residents have been able to stay in their homes despite rapidly increasing property values.
• In coastal communities like Half Moon Bay and Santa Cruz, Prop 13 has helped preserve the character of neighborhoods by allowing families to retain their properties across generations.
• For growing cities like Fremont and San Jose, Prop 13 has created a complex landscape where neighboring properties might have vastly different tax assessments based on their purchase dates.

Proposition 19: The Game-Changer for 2024 and Beyond

Passed in 2020 and fully implemented in 2021, Proposition 19 introduced significant changes to California's property tax rules. As we move into 2024, it's essential to understand how these changes are reshaping the Bay Area real estate market.

Benefits for Homeowners 55 and Older

Prop 19 allows eligible homeowners (those 55 and older, severely disabled, or victims of natural disasters) to:

• Transfer their tax base to a new home anywhere in California
• Purchase a more expensive home while retaining much of their tax base
• Use this benefit up to three times

This is excellent news for empty nesters in places like Cupertino or Mountain View looking to downsize without facing a massive property tax increase. It also opens up opportunities for retirees in high-value markets like San Francisco or Menlo Park to relocate to more affordable areas like Morgan Hill or Gilroy without sacrificing their property tax benefits.

Changes to Inheritance Rules

Prop 19 also modified inheritance tax rules, which is particularly significant for families in affluent areas like Atherton or Los Altos Hills:

• Inherited homes must be used as the heir's primary residence to maintain the original tax base
• The property tax benefit is now capped at the property's taxable value plus $1 million

These changes could significantly impact estate planning for families across the Bay Area, from the Peninsula to the South Bay and beyond.

What This Means for Bay Area Residents in 2024

The interplay between Prop 13 and Prop 19 creates both opportunities and challenges for homeowners in our service areas:

Opportunities

1. Increased Mobility for Older Homeowners: Residents in high-value markets like Palo Alto or Los Altos now have more flexibility to move without steep tax increases. This could lead to increased inventory in these desirable areas as long-time homeowners feel more comfortable selling.
2. Revitalization of More Affordable Areas: Cities like Salinas, Watsonville, or even up-and-coming neighborhoods in Oakland might see an influx of buyers taking advantage of Prop 19's portability benefits.
3. Intergenerational Moves: Families in places like San Mateo or Burlingame might find it easier to keep multiple generations close by, with older family members able to move without tax penalties.

Challenges

1. Increased Competition: First-time homebuyers in more affordable areas like Morgan Hill or Gilroy may face increased competition from older buyers taking advantage of Prop 19.
2. Complex Estate Planning: Families need to reassess their estate planning strategies, especially if they own multiple properties. This is particularly relevant in areas with high property values like Woodside or Hillsborough.
3. Potential for Increased Turnover: Some neighborhoods might see increased turnover as older homeowners feel more comfortable selling and moving, potentially changing the character of long-established communities.

Planning for the Future: Strategies for Bay Area Homeowners

As we head into the fall of 2024, it's an excellent time to review your real estate plans:

For Older Homeowners

• If you're over 55 and considering a move, explore how Prop 19 could benefit you. Could you leverage your tax base to move from San Jose to a beachfront property in Carmel-by-the-Sea?
• Consider how downsizing within your community could free up larger homes for growing families while maintaining your connections to the area.

For Families Planning Inheritance

• Consult with estate planning professionals to understand the inheritance implications of Prop 19. This is especially crucial for families with vacation homes in areas like Santa Cruz or investment properties in San Francisco.
• Explore options for transferring property to heirs while minimizing tax implications. Could setting up a family trust or LLC be beneficial?

For Potential Buyers

• First-time homebuyers should be prepared for potentially increased competition in more affordable markets. Consider expanding your search to up-and-coming areas like Marina or Seaside in Monterey County.
• Investors should analyze how Prop 19 might affect the long-term value and tax situation of potential purchases, especially in rapidly appreciating areas like East Palo Alto or parts of Oakland.

For Current Homeowners

• Even if you're not planning to move, understanding these laws is crucial for making informed decisions about your property. Could Prop 19 make it more feasible to purchase a second home or investment property?
• Consider how these laws might affect your property's value and your long-term financial planning.

The Oldham Group: Your Partner in Navigating Bay Area Real Estate

At the Oldham Group, we're here to help you navigate these complex issues. Our team has deep expertise in markets across the Bay Area, from the heart of Silicon Valley to the coastal communities of Santa Cruz and Monterey counties.

Whether you're in San Jose, Santa Cruz, or anywhere in between, we have the knowledge and resources to guide you through your real estate journey. We understand the nuances of each local market, from the tech-driven economy of Sunnyvale and Mountain View to the more relaxed pace of life in places like Scotts Valley or Capitola.

Remember, understanding these laws is crucial for making informed decisions about your property. If you have any questions about how Prop 19 or Prop 13 might affect your specific situation, don't hesitate to reach out to us. We're always here to help our Bay Area neighbors make the most of their real estate investments.

As we move through 2024, the real estate landscape in the Bay Area continues to evolve. With the right knowledge and guidance, you can navigate these changes to your advantage, whether you're looking to buy, sell, or simply understand your options better. At the Oldham Group, we're committed to providing you with the insights and support you need to thrive in this dynamic market.

From the bustling streets of San Francisco to the quiet neighborhoods of Los Altos Hills, from the innovative hub of Palo Alto to the agricultural richness of Salinas, our team is here to serve you. Let's work together to make your real estate dreams a reality in 2024 and beyond.

Learn more here: https://oldhamgroupluxury.com/prop19