Preserve and Transfer Your Property Tax Base with California Proposition 60 and 90

Californians 55 and older, Preserve your Tax Base With Proposition 60

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 Prop 60 and Prop 90 The California Propositions that allow a homeowner to transfer their tax base when they sell their home and buy another.

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Hey everybody, I’m Barry Kessler, the Real Estate Answer Man coming to you from Sunny Southern California. This is the podcast where we talk about  buying and  selling real estate,  we discuss investing in real estate, renting, leasing, landlord and tenant rights,  as well as California Real Estate law,We discuss home improvement, going green, Is it a good Idea to put solar Solar Panels on your roof?If it has anything do with putting a roof over your head, or somebody else’s head, we talk about it and much more on this show.  I’ll even  take you to places only a native Southern Californian will know about.  There is something for everyone to learn  So let’s get started.

Prop 60 and Prop 90 The California Propositions that allow a homeowner to transfer their tax base when they sell their home and buy another.

Let’s see how this works…..

California Homeowners, who are 55 or older and are selling their home and buying another, need to think about preserving their property tax base when making a move within the state of California. How is this achieved? What are the rules?  What is a tax base anyway?

In order to properly understand the tax incentives and implications, it makes more sense to take a look at the legislation and the propositions that shaped this need for senior homeowners to be protected under this umbrella voted on and passed by the citizens of the state of California.

Many of you have heard of Proposition 13.

Back in the 70’s as home values increased here in California, senior citizens on fixed incomes were having to sell their homes and move out of their neighborhoods because they couldn’t afford the increases in their property taxes. So Howard Jarvis came along, and helped pass Proposition 13. Prop 13 was adopted by California voters in 1978, and changed the definition of taxable value for all real property in the state.

 

Proposition 13 establishes a base year value for real estate and limits increases in the taxable value.

 Base year value is usually the market value when the property was transferred from one property owner to another.

 Increases in the taxable value of the home can not increase more than 2% per year, and that is tied to the consumers Price Index.

There are instances where your taxable value can increase more than 2% in one year if your property experienced any of the following:

  • A Change In Ownership
  • New Construction
  • Temporary reduction(s) in taxable value in prior tax year(s)

But Prop 13 legislation, although it was well intentioned, created another issue because, as long as these homeowners could keep their property taxes low if they stayed put, it didn’t protect them if they sold their home and purchased another home.

For example, if you had purchased your home 20 years ago for $250,000, your tax rate at 1.25% of the purchase price would have been  $3,125 per year. So then you have Prop 13 there to help keep your taxable property value at no more that 2% per year, assuming you were taxed the maximum amount of 2% each and every year for 20 years. even though your home is worth let’s say $700,000, you are only paying on a home that is being assessed as a $371,478 home and taxed just $4,637 per year.

I know, I just said JUST $4,637. Well, if you were being taxed on a $700,000 home you would be paying a whopping $10,500 per year. That is a huge savings. But…. Now, let’s say you decide to sell your property which is now worth $700,000 and downgrade to a new property at $500,000. Your new home would be subject to reappraisal and your new property taxes would now increase to $6,250 from $4,637 a year.

As a result, these seniors who should have been moving on and down-sizing their living situations, were not moving. They were just taking advantage of the tax benefits and staying put, oftentimes staying in homes that were way too big because the kids have moved out. With the kids gone things start to break down and not get fixed. Yards and landscape starts to deteriorate and it was another bad situation. Not only that, but younger families were not able to take advantage of these larger homes often occupied by one or two people.

 

So the voters amended things and in 1986 passed Proposition 60.

Proposition 60 allows you to transfer your current property’s assessed value into a new replacement property. In other words, you would be able to buy a new property, yet still pay the same property taxes you pay on your current property.

Proposition 60 Requirements

While Proposition 60 allows you to sell your current property and transfer its current assessed value into a new property, there are conditions you need to be aware of:

  1. You or your spouse must be at least 55 years of age when the original property was sold.
  2. The original property and new property must be within the same county.
  3. You can only use the transfer once in a lifetime.
  4. The new replacement property must be of equal or lessor value than the original property sold.
  5. The replacement property must be built or bought within 2 years of selling the original property.
  6. Your original property must be your primary residence and have been eligible for the homeowners’ exemption or disabled veterans’ exemption.
  7. Your replacement property must be your primary residence and must be eligible for the homeowners’ exemption or disabled veterans’ exemption.

 

 

 

Proposition 90 Expands Proposition 60

Proposition 60 only allows you to transfer your base tax value within the same county (intra-county). Proposition 90 allows you to transfer your base tax value from one county to another (inter-county), however only at the discretion of each county.

As of November, 2016 only eleven counties have an ordinance allowing for inter-county transfers:

1. Alameda
2. El Dorado
3. Los Angeles
4. Orange
5. Riverside
6. San Bernardino
7. San Diego
8. San Mateo
9. Santa Clara
10. Ventura
11. Tuolumne

Ordinances can be updated by counties from time to time. Be sure to check with your county for the most current information.

Proposition 60 Can Only Be Used One Time, But…

As a person over the age of 55, you can only use the benefits of Proposition 60 and 90 once in a lifetime. However, there is one exception via Proposition 110 which says if you received relief for age and subsequently became severely or permanently disabled and have to move because of the disability, you may exercise this relief a second time for disability.

Be aware that you cannot use Proposition 110 in reverse, meaning if you received relief for disability, you cannot later receive relief for age.

What Does Equal or Lessor Value Actually Mean?

Generally speaking, the market value of your new replacement property as of the date of purchase must be equal or less than the market value of your original property on the date of the sale.

It also depends on when you purchase the replacement property. Equal or lessor means:

  • 100% or less of the market value of the original property if the replacement property was purchased or newly constructed before the sale of the original property.
  • 105% or less of the market value of the original property if the replacement property was purchased or newly constructed within 1 year after the sale of the original property.
  • 100% or less of the market value of the original property if the replacement property was purchased or newly constructed within 2 years after the sale of the original property.

Market Value Is Not Always the Purchase Price

It’s important to note that market value is not necessarily the same as the sale or purchase price. Instead, the assessor will determine the market value of each property.

According to California’s Board of Equalization, property tax laws typically presume that the purchase price is the market value unless there is evidence that the property would have sold for another price in an open market transaction.

If the market value of your replacement property exceeds the market value of your original property as determined by the assessor, you will not receive relief.

Where to Get More Information About Proposition 60 and 90?

As you can see, Proposition 60 and 90 can grant California homeowners tremendous property tax relief; however there are many requirements and rules to adhere to. Click here for additional details from the California State Board of Equalization.

 

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