If you are 55 years or older and live in the state of California, you may be affected by the newly passed Proposition 19 if you are planning to conduct a Santa Barbara real estate transaction. Those who are planning to buy new homes for sale in Santa Barbara after selling their current house will likely benefit from the new law, while those who had planned to leave their estate to a child or another heir before moving to a new home will likely be negatively affected.
Not sure how or if Prop 19 will affect your moving plans? Here is everything you need to know.
Proposition 19 Details
In November of 2020, California voters passed Proposition 19. It allows homeowners in the state who are 55 years or older to experience tax benefits when they sell their current Santa Barbara real estate and move into new homes in the area. Those who qualify can now combine the taxable value of the property they sell with the value of the more expensive home they purchase.
This means that if you are 55 or older and sell your home in order to buy more expensive homes for sale in Santa Barbara, you can transfer your tax basis. Prior to the passing of Prop 19, homeowners could only perform limited transfers for homes that were less than or the same value as their current home, and only in certain counties.
In addition to affecting those 55 and older, Prop 19 also benefits those who have lost a home in a natural disaster or who have severe disabilities. Prior to the proposition passing, these individuals could only transfer their tax assets once. Now they are able to do so three times.
The third provision of Proposition 19 is what is negatively affecting some of those with homes for sale in Santa Barbara. This provision states that market-value reassessments are now required for properties that are inherited and won’t be used as the primary home of those who inherit them. This limits the parent-child exclusion for tax assessments that were previously available to those inheriting California property.
Before Proposition 19, parents, grandparents, and other homeowners were able to transfer their home to a chosen heir without a fair-market reassessment so their heir would be able to keep the same property tax basis. They also had the option of keeping the inherited property as a second home or a vacation home without any increased taxes on properties valued at up to $1 million.
Benefits of Proposition 19
One of the reasons that Californians voted for Prop 19 was because they believed it would help retirees and empty-nesters move to homes that were better suited to their current lifestyle without tax consequences that might otherwise inhibit their move. It is thought that this new law would encourage buyers to leave the homes that no longer suited them, making them available to first-time homebuyers and addressing the housing shortage the Santa Barbara real estate market has been suffering from.
In addition to increasing inventory and assisting older home buyers move to better accommodations, Proposition 19 also added around $2 billion to the state’s budget. The money is intended to be used to create affordable housing options for California residents, create programs for the homeless, enhance fire protection programs, and better a number of other services to make the area a safer and better place to live in. This, in turn, will further strengthen the housing market and the economy as a whole.
Drawbacks of Proposition 19
Those who opposed Proposition 19 did so because they thought it would only make the state a more expensive place to live, especially for those who inherit property. It was thought that the new tax law would cause heirs to sell their Santa Barbara real estate and move out of state instead of keeping it as a primary residence or vacation home and adding to the state’s economy. As California sees more and more residents leaving for more affordable states, opponents of Proposition 19 voted against it as they saw it as one more strike against remaining in their state.
Tips for Buying Homes for Sale in Santa Barbara
Have you been one of the thousands who has benefitted from Proposition 19? Are you ready to sell your house and look for more expensive homes for sale in Santa Barbara now that you can transfer your tax base? Here are some tips on how to find and buy the best property for your unique needs.
Though Santa Barbara real estate is now experiencing a buyer’s market where there are more homes on the market than interested buyers, it’s still important to get pre-approved for a mortgage. This shows sellers you are serious about buying their home and gives you a better idea of what you can afford.
Homes in Santa Barbara are staying on the market an average of roughly 20 days, but hot homes can easily sell within a few days of listing. To increase your chances of landing the home of your dreams, be ready to make an offer on the spot. If you wait, you could easily lose out to a more motivated buyer.
Work with an experienced Santa Barbara real estate agent.
It’s crucial to work with a professional agent when you’re buying — especially if you will benefit from Proposition 19. An agent can help you understand how the tax-transfer works and assist you in every step of the buying process.
Proposition 19 has its pluses and minuses for some of those looking at homes for sale in Santa Barbara. If you will benefit from the new law and are ready to start looking for a more expensive home, reach out to an experienced agent like Kendrick Guehr, who can guide you through each step of buying.
Disclaimer: Keller Williams nor Kendrick Guehr are tax professionals and are not giving tax advice. Please consult your CPA or tax professional for tax advice.