Homeowners age 55 and older can save on property taxes when downsizing in California

Since Prop 13 passed in 1978, California voters have adopted and passed 16 addition amendments, including Prop 60 and Prop 90, providing specific homeowners with property tax savings.

Prop 60 allows homeowners to keep their lower-cost tax base within the same county and Prop 90 allows them to keep it when moving to a different participating county.

Both of these amendments allow homeowners to transfer a low property tax assessment to a new home. There are rules, however, that limit who can take advantage of these tax breaks, what county they can move to, how much the new house can cost and the type of residency required.

Additionally, in November 2018, Proposition 5, an initiative on California’s ballot, aims to further amend these propositions to remove the limits on the new home’s price, let homeowners transfer their assessment every two years – rather than only once in a lifetime, and allow them to take their old assessment anywhere in the state.

What is Prop 13?

Since the passage of Prop 13, annual property tax increases, on any given property in California, are limited to no more than 2% per year, as long as the property is not sold. Once sold, the property is reassessed at 1% of the current sale price. This allows property owners to reliably budget for future property taxes, and determine the maximum amount taxes could increase as long as he or she owns the property, regardless of market value increases.

Prior to Prop 13, the property tax rate throughout California averaged around 3% of market value and there were no limits to how fast the tax could increase year-over-year as the market grew. In 1978 raging inflation skyrocketed property tax bills so high that many families had to sell their homes because they couldn’t afford to pay their property taxes.

Why Prop 60 / 90?

In California when you buy a new home, your new property is subject to reappraisal and a new base tax valuation. Assuming appreciation over time, each move will increase your tax base and, therefore, your property taxes will also increase.

For older people, whose income is reduced or becomes fixed due to retirement, this made it difficult to buy a new property because of new higher property tax burdens. Many empty-nesters were keeping their large homes that no longer met their family needs.

Imagine a long-term homeowner decided to sell their property they originally purchased for $400,000 15 years ago. Now that property is worth $1,000,000. They wanted to downsize to a new lower maintenance condo that is closer to their grandchildren. The price for the new condo is $800,000. Their new property tax bill would double from approximately $4,000/year to $8,000/year even though they downsized. This extra financial burden, made it prohibitively unaffordable for many homeowners to move later in life when income is reduced and fixed. It was this concern that Prop 60 was passed in 1986 and Prop 90 followed in 1988.

What’s the difference?

Both Propositions, also known as the exclusions for reappraisal, allow the transfer of the base year values of your current primary residence to your newly acquired primary residence with a slight difference:

• Proposition 60 – transfer within the same county.
• Proposition 90 – transfer from one county to another county in California (inter-county) and is at the discretion of each county to authorize such transfers. Currently, 11 counties participate.

Rules for both propositions

• Both homes must be the principle residence
• New home must be equal or lesser value
• Homeowner must be 55 years old or older
• In order to claim, the homeowner must file an application with the local county assessor
• The sale and purchase must occur within a 2-year period
• There is a one-time only lifetime benefit (additional benefit possible for disability)
• Applications must be made within three years of the date a replacement residence is purchased, or new construction of the replacement residence is completed.

Eligible counties for Prop 90

• Alameda
• El Dorado*
• Los Angeles
• Orange
• Riverside
• San Bernardino
• San Diego
• San Mateo
• Santa Clara
• Tuolomne
• Ventura

*The El Dorado County Board of Supervisors voted to end participation in Prop 90 effective Nov. 7, 2018

More property tax savings proposed: November 2018 ballot initiative aims to expand Prop 13

California Proposition 5, the Property Tax Transfer Initiative, sponsored by the California Association of Realtors, is on the ballot in as a combined initiated constitutional amendment and state statute on November 6, 2018.

A “yes” vote

supports amending Proposition 13 (1978) to allow home buyers who are age 55 or older or severely disabled to transfer their tax assessments, with a possible adjustment, from their prior home to their new home, no matter:

• the new home’s market value;
• the new home’s location in the state; or
• the buyer’s number of moves.

A “no” vote

opposes amending Proposition 13 (1978) to change how tax assessments are transferred between properties for home buyers who are age 55 or older or severely disabled.

Additional resources

For more information on the propositions, check out these additional resources:

• What is Prop 13?
• If you are thinking of doing a property exchange through Prop 60 or 90, there are additional in-depth information on the FAQ page on California Board of Equalization’s website.
• El Dorado County repealing Prop 90 effective November 7, 2018
• Santa Clara County Assessor Larry Stone speaks about Prop 60/90 Benefits and Qualifications

Disclaimer

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.