Thinking About Downsizing?

Have you lived in your home for 20, 30, or even 40 years? Perhaps your children have grown up and moved away, the house feels larger than you need, or you’re ready to trade yard work and home maintenance for a simpler lifestyle.

For many longtime California homeowners, downsizing can be an appealing next chapter. But one concern often stands in the way: If I sell my home and buy something smaller, will my property taxes increase dramatically?

Thanks to California’s Proposition 19, eligible homeowners may be able to sell their current residence, purchase a replacement home, and transfer their existing property tax base to their new home.

For homeowners considering a move in Contra Costa County or elsewhere in California, understanding how this law works could make a meaningful difference in your financial planning.

What Is Proposition 19?

Proposition 19 took effect on April 1, 2021, expanding the ability of certain California homeowners to transfer the taxable value of their primary residence to a replacement home.

Under this law, homeowners who are 55 or older, severely and permanently disabled, or qualifying victims of a wildfire or other natural disaster may be eligible to transfer their property tax base when purchasing or constructing a replacement primary residence anywhere in California.

For homeowners age 55 and older, the benefit can generally be used up to three times during their lifetime.

The potential advantage is significant: rather than automatically having their replacement home assessed entirely at its new market value, eligible homeowners may be able to retain some or all of the lower taxable value associated with their longtime home. If the replacement home costs more than the original home’s qualifying value, the difference is generally added to the transferred taxable value.

The result? Moving to a home that better suits your current lifestyle may be more financially manageable than you think.

Five Potential Benefits of Downsizing With Proposition 19

1. You May Be Able to Keep Your Lower Property Tax Base

One of the biggest advantages for longtime homeowners is the opportunity to preserve a favorable property tax assessment.

Imagine purchasing a home decades ago when prices were substantially lower than they are today. Over the years, your home’s market value may have increased considerably, while your assessed taxable value has remained much lower.

If you sell and purchase a smaller replacement home, Proposition 19 may allow you to transfer that established tax base, provided you meet the eligibility requirements.

Why this matters: Your property taxes may be lower than they would otherwise be on a newly purchased home at today's market value.

Your actual savings will depend on your current taxable value, the market value of the home you sell, the purchase price and timing of your replacement home, and other applicable assessment rules.

2. You Can Move to a Home That Better Fits Your Lifestyle

Downsizing doesn't necessarily mean sacrificing comfort. It can mean finding a home that works better for the life you're living today.

Perhaps you no longer need four or five bedrooms. Maybe you'd prefer a single-story home, a smaller yard, a condominium, or a property closer to shopping, restaurants, family, or healthcare services.

With Proposition 19, eligible homeowners can purchase a replacement primary residence anywhere in California. The replacement property does not have to be less expensive than the original home to qualify for a transfer, although a higher-priced home may result in an adjustment to the transferred taxable value.

This flexibility can open the door to a variety of options, whether you're staying in the East Bay or considering a move elsewhere in the state.

3. You Could Free Up Equity for Retirement and Other Priorities

For homeowners who have built substantial equity over many years, selling a larger home and purchasing a smaller one may unlock funds for other goals.

Depending on your sale price, replacement home cost, mortgage payoff, and transaction expenses, downsizing could leave you with money to put toward:

• Retirement savings and investments
• Travel and experiences you've been putting off
• Helping children or grandchildren
• Reducing or eliminating a mortgage
• Building a financial cushion for unexpected expenses

Every homeowner's situation is different, and the proceeds from a sale should be evaluated after accounting for selling costs, moving expenses, the replacement home's purchase price, and any outstanding mortgage.

Still, for some homeowners, the combination of accessible equity and potentially favorable property tax treatment makes downsizing worth exploring.

4. You May Reduce Your Ongoing Homeownership Expenses

A smaller home may mean less time and money spent on maintaining your property.

Depending on the home you choose, you could reduce expenses associated with landscaping, exterior maintenance, repairs, utilities, and upkeep of unused rooms.

A move may also provide an opportunity to simplify your daily routine and spend less time managing your home.

Keep in mind that a smaller home is not automatically less expensive to own. Homeowners association dues, insurance, location, property condition, and the cost of the replacement property should all be considered when comparing your options.

5. You Have More Flexibility in Choosing Where to Live

Before Proposition 19, transferring a property tax base was subject to more restrictive geographic and purchase-price rules.

Today, eligible homeowners can transfer their tax base to a qualifying replacement primary residence anywhere in California.

That means you can evaluate your options based on the lifestyle you want rather than limiting your search to a particular county.

You might remain close to family in Contra Costa County, move to another part of the Bay Area, or consider a different California community that better fits your retirement plans.

The important point is that your next home can be chosen around your needs, while Proposition 19 may help reduce the property tax impact of making that move.

How Does the Property Tax Transfer Work?

Let's look at a simplified hypothetical example.

Suppose you purchased your longtime home many years ago, and its current market value is $1,500,000. Your factored taxable value is $400,000.

You decide to sell and purchase a smaller replacement home for $1,000,000.

If you qualify for Proposition 19 and the applicable requirements are met, your existing factored taxable value may be transferred to the replacement home without an upward adjustment based on the difference in market values.

In this simplified scenario, the replacement home could have a taxable value based on approximately $400,000 rather than its $1,000,000 purchase value, subject to assessor review and applicable rules.

That difference could represent substantial property tax savings over time.

Important: These figures are illustrative only, not a property tax quote. Actual eligibility and taxable value depend on the assessor's determination, the applicable valuation rules, transaction timing, and other circumstances.

What Are the Basic Eligibility Requirements?

If you are considering downsizing, here are several important points to understand:

• Age or qualifying circumstance: You must meet one of the qualifying categories, such as being at least 55 years old at the time of sale, being severely and permanently disabled, or qualifying under the disaster provisions.
• Primary residence: The original property must qualify as your principal residence, and the replacement property must also become your principal residence.
• Timing: The replacement home generally must be purchased or newly constructed within two years before or after the sale of the original home.
• Replacement home value: A replacement home of equal or lesser qualifying value can generally receive the transferred taxable value without an upward value adjustment. For a replacement purchased within the first year after the sale, the applicable threshold is generally 105% of the original home's value; within the second year, it is generally 110%. Amounts above the applicable threshold are added to the transferred taxable value.
• Number of transfers: Eligible homeowners age 55 or older and those qualifying through severe disability may generally use the benefit up to three times. Separate rules apply to qualifying disaster-related transfers.
• Filing a claim: You must submit the appropriate claim to the assessor in the county where the replacement home is located.

These are general guidelines, and exceptions or additional requirements may apply. Confirm your specific situation with the appropriate county assessor before making a purchase or sale decision.

Is Now the Right Time to Consider Downsizing?

There is no single right time to sell a longtime home. The decision depends on your finances, lifestyle, family needs, and future plans.

However, if maintaining a large home is becoming less appealing, or you would prefer to use some of your home's equity for other priorities, it may be worth reviewing your options.

A thoughtful downsizing plan should consider more than just the sale price. It should include your estimated net proceeds, the cost of a replacement home, potential property tax savings, moving expenses, and your long-term housing needs.

For eligible homeowners, Proposition 19 may help make that transition easier by reducing the property tax consequences that could otherwise accompany a move.

Let's Explore Your Options

If you have owned your home for many years, you may have built significant equity and a valuable property tax advantage. Before deciding whether to stay or sell, it is worth understanding how both could affect your future.

As a real estate professional serving Contra Costa County and the surrounding East Bay, I can help you evaluate your home's current market value, explore potential downsizing options, and estimate the financial considerations involved in making a move.

Your next chapter may not require as much space—but it deserves a well-informed plan.

If you are curious about what your home could sell for or how Proposition 19 might affect your next move, I would be happy to help you begin exploring the possibilities.

Disclaimer: This article is for general informational purposes only and is not legal, tax, or financial advice. Proposition 19 eligibility, taxable value transfers, and potential savings depend on individual circumstances and applicable law. Consult the Contra Costa County Assessor or the assessor in the county where your replacement property is located, along with your tax professional or legal advisor, before making a decision.