Bought your Peninsula home years ago? Prop 13 caps your property tax increases at 2% per year. Enter your purchase price and current value to see how much you're saving annually compared to market-rate taxation.
Prop 13, passed by California voters in 1978, limits property tax to 1% of assessed value — the original purchase price or construction cost at the time of acquisition — plus local voter-approved bonds and special assessments. On the Peninsula, those add-ons bring the effective rate to roughly 1.1%–1.25% depending on the city and school district. The assessed value may increase by no more than 2% per year as long as you own the property. When a property transfers ownership, it is reassessed to current full market value, which triggers a full reassessment for the new buyer. This creates a significant split between long-term owners (with low assessed values) and recent buyers (assessed at today's prices). On a $4 million Peninsula home purchased for $800,000 in 2005, the difference in annual tax bill between the current owner and a new buyer can be $30,000–$45,000.
A "change of ownership" triggers a full reassessment to current market value. This includes: (1) any sale or transfer of the property for value, (2) adding a new co-owner who is not a spouse or registered domestic partner, (3) certain trust transfers that don't qualify for the spousal or parent-child exclusion. New construction and major improvements add the improvement value to your Prop 13 base at current construction cost, but they do not cause the existing structure to be reassessed. Prop 19, effective February 2021, dramatically changed the parent-child inheritance exclusion — the new rules are more restrictive than the old Prop 58 rules, limiting the carry-over to primary-residence-to-primary-residence transfers with a $1 million cap above the parent's assessed value.
Prop 19 (effective February 16, 2021) replaced Prop 58's broad parent-child exclusion with a more limited rule. Under Prop 19, a child can inherit a parent's Prop 13 assessed value only if: (a) the property was the parent's primary residence at the time of transfer, AND (b) the child uses it as their own primary residence within one year of the transfer. The exclusion is also capped — if the current market value exceeds the parent's assessed value by more than $1 million, the portion above that threshold will be added to the transferred assessed value. Investment properties, vacation homes, and commercial properties no longer qualify for any Prop 13 base carry-over under Prop 19. For a $4 million Atherton home assessed at $600,000, a child who moves in as their primary residence can still benefit from a significant exclusion, but would face partial reassessment above the $1.6 million threshold ($600K assessed + $1M cap).
Yes, under Prop 19 (which replaced Prop 60 and Prop 90). Homeowners who are 55 years or older, severely disabled, or victims of a declared natural disaster can transfer their existing Prop 13 assessed value to a replacement home anywhere in California — any county, any property type. You can exercise this right up to three times in your lifetime. There is a value adjustment rule: if the replacement home costs more than the sales price of your original home, the excess amount above the sale price is added to the transferred assessed value. For a Peninsula homeowner with a $500,000 Prop 13 base selling for $3 million and buying a $2.5 million replacement, the Prop 13 base transfers cleanly. If the replacement costs $3.5 million, the $500,000 excess above the sale price is added to the $500,000 base, resulting in a $1,000,000 assessed value — still well below market rate.
Lisa can walk you through how a sale and repurchase would affect your property tax position — including Prop 19 transfer analysis.
Talk to Lisa