California’s Proposition 19: What Does It Mean For Real Estate Investing?

Posted by Techyscouts | Posted on 12/23/2020
  •  Real Estate
  • You may have heard that California’s Prop 19 passed by a slim margin in the 2020 voting cycle, but if your interests are in Los Angeles real estate, what does this proposition mean for you? Prop 19 is a new law that has two main clauses: one which reduces the property taxes for older folks downsizing and buying smaller homes, and one which increases the property taxes on people inheriting homes from their parents. Both aspects of this proposition will have an effect on inventory, turnover, and value, but the question is how much and in what direction? Mike Millea and his team have been counseling real estate investors and buyers in the greater Los Angeles area for the past 20 years, and have put together this quick guide on how Prop 19 will affect Los Angeles real estate.

    Reduced Taxes For Older Buyers

    The first clause outlines that people older than 55 who are buying properties smaller than their old place will be able to retain some of the low tax rates from their previous property. Written in order to free up inventory and encourage empty nesters to downsize, the law will likely do just that. With reduced fear of buying into a much higher tax rate, older folks will be encouraged to sell their larger homes with excess space. While prop 19 will definitely free up some inventory space in the Los Angeles real estate market, it is unlikely that it will significantly affect market prices, as inventory will still be relatively low and prices high.

    Increased Taxes For Inherited Properties

    While Prop 19 means that some children who are inheriting property will have to pay market tax rates, there are a number of conditions that need to be the case for it to affect the new property owner. For instance, if the property will be used as the inheritor’s principal property, then no tax increase will be applied. Similarly, if the estimated increased tax value is less than $1,000,000 then the new owner is also exempt from the tax increase. In short, prop 19 will encourage some children who are inheriting property to sell, increasing inventory and turnover, but not dramatically so.

    For more information on what our market is doing right now, check out our article on how Covid19 has affected the Los Angeles real estate market.

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