The new federal tax law makes some our existing California laws (specifically Props 60 and 90) related to property taxes very important to home owners 55 and over that are considering selling their primary residence. I have blogged on this before but it is timely as we kick off 2018 and look at a substantial change to the ability to deduct state taxes from our federal returns.
Prop 60 provides for qualified homeowners 55 and above the ability to sell their home and transfer their currently low property tax rate to a new property of "equal or lesser" current market value. If you have lived in your home many years and bought when the market was much lower this could pertain to you.
What do I mean by this? Your property tax base rate was determined at the time you purchased your home. Under Proposition 13, property in California is usually only reassessed at current market value when it changes ownership (although there are exceptions to that.) At the time of the transfer, the tax is set at one percent of the newly-assessed value plus local taxes. In between changes of ownership, the assessed value can go up by an inflation rate of up to two percent per year or if a major remodel/addition is done that portion could add to the assessed value. Consequently, people who have owned their home for many years pay far less in property taxes than they would if they purchased the same house (or possibly a smaller one!) today since their base rate goes back to the value at the time they purchased the home.
In the late 1980s, California voters approved both Prop 60 and Prop 90 propositions that give homeowners over 55, or those permanently disabled, a property tax break when they sell their primary residence and buy a replacement property that costs the same or less. The "same or less" has some caveats so confirm the details through the State Board of Equalization website which you can find here.
This was intended to provide some relief to those facing retirement from having to pay higher property taxes in a downsized property.
The transfer of base year values can be within the same county or between two California counties if that county accepts incoming transfers. (That is what Prop 90 did - allowed you to transfer it between counties that choose to allow the transfer.) Only 11 counties currently do allow transfer but include San Diego, Orange and Los Angeles Counties. Of note is that San Francisco County doesn't allow the transfer.
If you are married only one spouse must be older than 55 to qualify. Once you have used this transfer, based on age, neither you nor your spouse can use it again unless one of you becomes disabled then you can transfer again based on disability.
The state legislature is currently considering legislation that would do away with the one and done rule and would require all counties to accept the transferred rates. I will blog on this once this issue is settled. Stay tuned!
This is just a brief overview of how the law works but it could work for you. The State Board of Equalization page that I linked to above has more answers or talk to your accountant for advice specific to your situation. If you are considering enjoying the benefits of this transfer and need help buying or selling it would be my pleasure to assist you. Contact me at Tracey@TraceyStotz.com. or (619) 200-0918.
