Are you Eligible to Avoid Property Tax Increases Through Propositions 60/90?
Typically, whenever a home is sold in California, the new owner faces reappraisal of the home’s value and a parallel alteration to the home’s base tax value. It is typical that this often translates to an increase in the amount of property taxes that will be paid by the new homeowner, based on consistently escalating home values. This proves problematic for the elderly or retired community with decreasing or fixed incomes who sell their established home looking to downsize.
Here is an example, a couple bought a house in 1990 for $250,000, with a 1.25% tax rate, causing their annual property taxes to be $3,125. The county assessor has the option to raise their property’s assessed value up to 2% a year throughout ownership. If the assessor followed the 2% permissible value assessment each year until 2017, the property’s current assessed value would become $410,151. This brings the annual property tax total to $5,126 - a significant difference from the original $3,125.
The couple has decided to retire, and since they have an empty nest, they are now interested in downsizing to liquidate the equity they’ve accrued in their home over the last 27 years. They then sell their 3 bedroom, 2 bath home for $1,528,600 and buy a 2 bedroom, 1 bathroom home in the same neighborhood for $1,050,046. In terms of extracting equity from their previous home, they’ve made a great decision. However, the catch 22 is they will now be paying property taxes based on the value of their new home as opposed to their old. At a rate of 1.25% their new annual property tax total would be $13,125 - over two and a half times greater than what they were previously paying. Over a ten-year span, this would impose a tax payment of approximately $130,000. With a fixed income, this could be extremely difficult to manage, especially if there are any outstanding debts such as a renovation loan. This is the very reason why the state of California passed Proposition 60.
Prop 60 designates that homeowners over the age of 55 may sell their home and transfer its current assessed value to their new home provided that both homes are in the same county. Later on, Proposition 90 was passed allowing inter-county transfers, as long as the counties agree upon it. The following are the only counties in California which enable the inter-county transfer: Los Angeles, San Bernardino, Riverside, Ventura, Orange, San Diego, Tuolumne, Alameda, El Dorado, San Mateo, and Santa Clara.
It is important to note that there is one stipulation to this tax benefit. A homeowner may transfer their base year value only once. This includes both the homeowner and their spouse living in the same residence – neither will be permitted to file again. However, there is one exception to this rule. If the person who received tax relief based on age became severely and/or permanently disabled after the original claim was filed, resulting in their need to relocate (Prop 110), then they are permitted to transfer the base year value a second time. This, however is not applicable in the reverse situation; if one receives the tax benefit due to disability, they cannot later claim the same relief for age.
Eligibility Requirements for Propositions 60/90:
1. You, or a spouse residing with you, must have been at least 55 years of age when the original property was sold.
2. The replacement property must be your principal residence and must be eligible for the homeowners' exemption or disabled veterans' exemption.
3. 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 property, even if the owner of the original property purchases only a partial interest in the replacement property. Owners of two qualifying original properties may not combine the values of those properties in order to qualify for a Proposition 60 base-year value transfer to a replacement property of greater value than the more valuable of the two original properties.
4. The replacement property must be purchased or built within two years (before or after) of the sale of the original property.
5. To receive retroactive relief from the date of transfer, you must file your claim within three years following the purchase date or new construction completion date of the replacement property.
6. Your original property must have been eligible for the homeowners' or disabled veterans' exemption either at the time it was sold or within two years of the purchase or construction of the replacement property.
Please always be sure to check with your certified tax advisor.
You can find more information regarding Prop 60/90 at: http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm