CA Prop 19 question on conversion of rental to primary

[Arun V.]

Hello 

This question came up in my conversation with a large property owner who is over 60 years old. They own several properties in the bay area

They bought the home, call it H1, they live in  about 30 years back for about 450K. It is worth 3M now but the tax basis is close to 700k. So they pay only about 8500 in property taxes

They bought a new home, call it H2, a few years back for about 3m and are renting it out. Annual Property tax on the this home is close to 36000. 

They plan to sell H1 for 3M and plan to move into H2 in the next several months but are worried about losing the basis transfer from H1 to H2 if they convert H2 to primary because they did not buy H2 after selling H1

Prop 19 says that for basis transfer, new property must be purchased within 2 years of sale of the current home. Since they are moving into H2 that has been a rental all this while, it is not a new purchase. But it is a conversion from one rental to primary

Other alternatives to achieve the basis transfer would be to sell both and buy a new one but that would trigger income taxes and sales expenses that may be more than the tax savings from basis carryover. 

Some people on this forum may face similar situations. Has anyone navigated this area? What do lawyers or CPAs on this board think?