Preserving Your Prop 13 Basis When Moving on the Peninsula

By Ken DeLeon

For many long-term California homeowners, Proposition 13 is one of the most valuable financial benefits of homeownership. Passed in 1978, Proposition 13 generally limits annual increases in a property’s assessed value to no more than 2 percent per year, unless there is a reassessment event such as a sale or major new construction. As a result, many longtime homeowners pay property taxes based on an assessed value that is far below the current market value of their home.

That can create a major obstacle for Peninsula homeowners who would otherwise like to move. A homeowner in Silicon Valley may want to downsize, move closer to family, buy a single-level home, reduce maintenance, or relocate within California. However, if moving means giving up a low Prop 13 assessed value and starting over with a much higher tax basis, many owners understandably hesitate.

The good news is that preserving your property tax basis is now much easier than it was in the past. Proposition 19, which California voters approved in 2020, significantly expanded the ability of eligible homeowners to transfer their existing property tax basis to a replacement primary residence anywhere in California. The California State Board of Equalization explains that Proposition 19 allows eligible homeowners who are age 55 or older to transfer the taxable value of their primary residence to a replacement primary residence, subject to the rules and limitations of the law.

Why Prop 13 Can Discourage Moving

Proposition 13 has been enormously valuable for long-term homeowners because it limits how quickly the assessed value of a home can rise. In many Peninsula communities, market values have increased dramatically over the past several decades, while assessed values for longtime owners have grown much more slowly.

This means that a homeowner who purchased decades ago may be paying taxes on a fraction of the home’s current value. Without a tax basis transfer, selling that home and buying another property could create a substantially higher annual property tax bill. For some families, that increase can be tens of thousands of dollars per year.

That is why the ability to preserve a Prop 13 basis can be so important. It allows qualifying homeowners to make lifestyle decisions based on what they need now, rather than feeling trapped by the fear of a large property tax increase.

The Old Rules Under Proposition 60 and Proposition 90

Before Proposition 19, many homeowners relied on Proposition 60 and Proposition 90 to transfer their property tax basis. These rules were helpful, but they were also restrictive.

Proposition 60 generally allowed eligible homeowners age 55 or older to transfer the base year value of their primary residence to a replacement home within the same county, provided the replacement home was of equal or lesser value and the timing requirements were met. Proposition 90 allowed certain intercounty transfers, but only if the destination county accepted those transfers, which only about ten counties did.

For Peninsula homeowners, these restrictions often created practical problems. A seller could not always move freely to the city, county, or home that best fit their needs. The replacement property generally had to be equal or lesser in value, which limited the ability to trade up, even when doing so made sense for lifestyle, family, or health reasons. In addition, the transfer was generally a one-time benefit.

How Proposition 19 Changed the Rules

Proposition 19 made property tax basis transfers far more flexible for eligible homeowners. Under Proposition 19, qualifying homeowners can generally transfer the taxable value of their primary residence to a replacement primary residence anywhere in California. This matters greatly for Peninsula homeowners because it removes many of the county-based limitations that existed under the old Prop 60 and Prop 90 system.

Proposition 19 also expanded the number of times eligible homeowners age 55 or older, or severely and permanently disabled homeowners, may transfer their base year value. The Board of Equalization states that eligible homeowners may transfer their base year value up to three times, instead of just one time.

Another major change is that Proposition 19 allows a transfer even when the replacement home is more expensive than the original home. If the replacement home is equal to or less than the value of the original home, the existing taxable value may generally be transferred. If the replacement home is more expensive, the transferred value is adjusted by adding the difference between the replacement home’s value and the original home’s value. In plain English, eligible homeowners can still preserve a significant portion of their Prop 13 benefit even if they buy a more expensive home.

Why This Matters on the Peninsula

The Peninsula has many long-term homeowners whose homes have appreciated substantially. For these owners, the ability to preserve a low tax basis can unlock major life flexibility.

A Palo Alto homeowner may want to move to Los Altos Hills for more land. A Menlo Park homeowner may want to move to Atherton for privacy. A Los Altos Hills homeowner may want to downsize into a single-level home closer to town. Before Proposition 19, many of these moves were financially unattractive because of the potential tax increase. Today, the rules are much more flexible for eligible homeowners.

This can be especially valuable for empty nesters, retirees, homeowners with health or mobility needs, and families who want to adjust their housing without being penalized by a dramatic increase in property taxes.

How DeLeon Realty Helps Clients Navigate Prop 19

At DeLeon Realty, we routinely help sellers understand how Proposition 19 may affect a move. Because our team includes attorneys and professionals experienced with Peninsula real estate, we can help clients identify the questions they should be asking early in the process.

This is important because the timing, eligibility, property values, county filing procedures, and replacement property rules all matter. The claim is generally filed with the assessor in the county where the replacement home is located, and homeowners should confirm their eligibility and filing requirements with the appropriate county assessor or qualified tax advisor before relying on the transfer.

For DeLeon Realty clients, we help make the process easier by helping them understand the paperwork, the timing, and the practical steps involved in preserving their property tax basis. We also help sellers evaluate whether moving now may make financial sense when property tax savings, capital gains planning, lifestyle needs, and market conditions are considered together.

Preserving Your Prop 13 Basis Can Make Moving Possible

For many Peninsula homeowners, the low assessed value created by Proposition 13 is a powerful financial asset. In the past, the fear of losing that tax basis kept many owners in homes that no longer fit their needs. Proposition 19 changed that equation by giving eligible homeowners far more flexibility to move within California while preserving much of their property tax benefit.

The potential savings can be substantial, often reaching tens of thousands of dollars per year depending on the homeowner’s current assessed value, replacement property value, and local tax rate. More importantly, Prop 19 can allow homeowners to make better life decisions without being locked in place by property taxes.

If you are considering selling a home on the Peninsula and want to understand how Proposition 19 may help you preserve your Prop 13 basis, DeLeon Realty can help you evaluate the real estate, timing, and practical considerations involved in your move.

Ken DeLeon (DRE #01342140) | ken@deleonrealty.com | 650.543.8501

DeLeon Realty, Inc. | DRE #01903224 | Equal Housing Opportunity