If you live in California and are over the age of 55 you can effectively reduce your property taxes when buying a new home.
In California when you buy a new home your new property is subject to reappraisal and therefore a new base tax value. Since real estate historically appreciates over time, your new base tax value will increase and therefore your property taxes will also increase.
Especially for older people whose income either diminishes or becomes fixed, this makes it difficult to buy new property because of new higher property tax burdens. It was in this spirit that Proposition 60 was passed in 1986 and Proposition 90 followed in 1988.
New Higher Property Tax Burdens Make It Difficult to Move
For example, imagine you bought a property 20 years ago at $200,000. At an estimated 1.25% effective tax rate your property taxes were $2,500 annually, an affordable amount at the time. Click here for details about California Property Tax.
Proposition 13 allows the county assessor to increase the assessed value of your property by no more than 2% annually. Assuming they do, your current assessed value today would be $291,362 thereby making your current tax burden $3,642 annually.
Now, let’s say you decide to sell your property which is now worth $650,000 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 $3,642!
For many, the new tax burden makes it nearly impossible to move later in life when income is no longer growing.
Proposition 60 Is Here to Help!
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.
This tax benefit results in thousands of dollars of savings; but not everyone will qualify.
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:
- You or your spouse must be at least 55 years of age when the original property was sold.
- The original property and new property must be within the same county.
- You can only use the transfer once in a lifetime.
- The new replacement property must be of equal or lessor value than the original property sold.
- The replacement property must be built or bought within 2 years of selling the original property.
- Your original property must be your primary residence and have been eligible for the homeowners’ exemption or disabled veterans’ exemption.
- 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 20, 2014 only ten counties have an ordinance allowing for inter-county transfers:
2. El Dorado
3. Los Angeles
|6. San Bernardino
7. San Diego
8. San Mateo
9. Santa Clara
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.
By Tim Nguyen