If you live in California and are over the age of 55, you can effectively transfer your existing home’s low property tax base value to your new home under certain conditions.
I find that a lot of older adult homeowners who are thinking of selling their home and buying in another hesitate to do so because they are afraid that they will end up having to pay higher property taxes. Luckily, under California Propositions 60 and 90, homeowners 55 or older may move into a new home without substantially increasing their property tax obligation.
How does this work?
In 1978 California voters adopted Prop 13, which has provided that general property taxes for are calculated based on 1% of the purchase price. Annual increases in property valuations are capped at 2% per year, until the next sale.
This means that as long asproperty values increase by more than 2 percent per year, homeowners gain from remaining in the same house because their taxes are lower than they would be on a different house of the same value. Proposition 13 thus gives rise to a lock-in effect for owner-occupiers that strengthens over time.
Here’s an example –
For example, you bought a home twenty years ago for $200,000. It would have been initially taxed at $2,000 (1% of the purchase price). For the next twenty years the assessed value would be increased 2% each year over the previous year’s assessed value. After 20 years, the assessed value of your home would be $291,362 and the property tax of 1% would equal $2,913/year (Bear in mind, however, that your property tax may have also increased based on variety of statutes, exemptions and special taxes).
Say that you decided to sell, and your home sold for $1,000,000, the new owner would pay property taxes equal to 1% of their purchase price — $10,000. If you then decide to purchase a home for $500,000, then your property taxes would be calculated on that purchase price – 1% of $500,000 or $5,000. In essence you will now be paying more tax on a lower priced home. HOWEVER, with Proposition 60 and 90, you may be able to keep your current property tax base of $2,913 instead of $5,000 in this example, when you buy a replacement property.
Proposition 60 authorized the California State Legislature to provide a special method of establishing assessed value for replacement residential property acquired by a homeowner over the age of 55. Namely, it allowed homeowners 55 years of age and older to transfer the base year value of their principal residence to a newly purchased residence in the same county, providing that certain requirements are met. (Cal. Rev. & Tax Code § 69.5(a)(1) and (2))
Proposition 90 has the same provisions and qualifications as Proposition 60 but applies to transfers from one county to another county in California, if the new county has enacted Proposition 90, which is optional (unlike Proposition 60, which applies in all counties). Only a limited number of counties are participating in Proposition 90. The counties that have adopted the Proposition 90 ordinances at the time of first publishing this article are: Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, and Ventura. However, this list can change at any time. Contact the local assessor to see if the value of your original property can be transferred to a replacement in that county.
What is the difference between Proposition 60 and Proposition 90?
Proposition 60 relates to transfers within the same county (intra-county). Proposition 90 relates to transfers of base value from one county to another county in California (inter-county).
1. The replacement property must be your principal residence and must be eligible for the Homeowners’ Exemption or Disabled Veterans’ Exemption.
2. The replacement property must be of equal or lesser “current market value” than the original property. The “equal or lesser” test is applied to the entire replacement residence, even if the owner of the original property acquires only a partial interest in the replacement residence. Owners of two qualifying original residences may not combine the values of those properties in order to qualify for a Proposition 60 base-year transfer to a replacement residence of greater value than the more valuable of the two original residences.
3. The replacement property must be purchased or built within two years (before or after) of the sale of the original property.
4. Your original property must have been eligible for the Homeowners’ or Disabled Veterans’ Exemption.
5. You, or a spouse residing with you, must have been at least 55 years of age when the original property was sold.
Assuming you meet the requirements above, you can proceed with your intention to take advantage of the benefits that California Prop 60/90 has to offer. These two propositions can provide tremendous relief to California homeowners 55 and over. Please make sure to check all requirements and eligibility rules.
If this is something that could potentially benefit you and you would like to discuss the possibility of purchasing the home of your dreams with your Prop 60/90 tax break or would like more information, please feel free to contact me at (650) 678-8785.
If you still have questions about Propositions 60/90, you may find the answers in Letter To Assessors No. 2006/010 or, you may call the Assessment Services Unit at 916-274-3350 or visit http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#9
An original post of this article was published on September 15, 2019