The Upside of Prop 19 and ADUs

August 20, 2021

California’s newest property tax law, Proposition 19, was a significant legislation change impacting property inheritance. With the popularity of accessory dwelling units (ADUs) growing in California, one question that begs to be answered is how Proposition 19 fits in.

We’ll get to the answer, but first, we’ll quickly review ADUs and then explain what changed in property tax law when Proposition 19 took effect.

About ADU’s

An ADU—also referred to as a granny flat, mother-in-law unit, or sometimes a backyard cottage—is a popular addition to California homes these days. They’re separate from the main house and can be used for rental income or to provide a living space for loved ones or close friends.

Here at Design Appruv, we specialize in ADUs. We work with homeowners to help them find a professional ADU designer and then assist with the permit process to see a project through from the initial idea to the finished addition.

As you might imagine, there are rules and regulations to follow, as with any construction project. Still, ADUs are popping up everywhere in every setting imaginable – from metropolitan cities to rural ranches.

What is Proposition 19?

Proposition 19 is a constitutional amendment that California voters passed in November 2020. The legislation modified the tax benefits for transfers of real property from parents or grandparents to their children or grandchildren.

Under the previous law, a person who inherited a home from a parent or grandparent could avoid having the property reassessed at the current market value for tax purposes. The law allowed for substantial tax savings for the recipient of the property.

For example, let’s say you inherited your grandmother’s home and the annual property tax bill is low because it’s been based on a previously assessed tax value. Before Proposition 19, that tax bill would remain the same for you once you took ownership. Under the new law, though, once the property is transferred to you, it’s reassessed at current market value, and the property taxes are updated accordingly.

What Does Prop 19 Mean For ADUs?

Under the new law, a transferred property must be the principal residence of both the transferor and the transferee. In other words, the homeowner who is passing down the property must have lived in the home, and the person they’re handing it down to must live there as well.

This may reduce the ability of an inheritor to treat the home as an investment property. It may be better to flip the property on the market. In that case, a remodel (such as adding an ADU) can improve market value for the person inheriting the home.

Proposition 19 also removed a location restriction. That opened up the housing market, making inter-county buyers more mobile. Previously, with Propositions 60 and 90, tax base transfers were restricted to a limited number of counties. Proposition 19 lifted this restriction, thereby opening up the market for many more buyers from around the state.

The bottom line is that a home on the market with an ADU provides a much more attractive package for prospective homebuyers. And with the location restriction now gone, there’s more buyers in the market who may be looking for a home with this added value.

For Information On ADU Remodel Projects

If you are considering remodeling a home that was passed down to you (to flip it on the market) and are interested in learning more about adding an ADU, we can help. Don’t hesitate to contact us for a complimentary consultation today!

About Design Appruv

Design Appruv is an expert firm of architectural draftsmen and designers. We pride ourselves in delivering a 5-star experience; we value transparency, regular communication, and a client-focused approach.

With Design Appruv’s established industry partners and 80 years of combined experience, you can trust your project is in capable hands.