Prop 13 Homeowners
If you want to protect your existing Prop 13 property taxes, Propositions 60 and 90 may be applicable if you meet certain requirements (read more below)….
Propositions 60 and 90
A Guide to Transferring Your Property Tax
Summary of Propositions 60 and 90
Proposition 13 started the trend to protect homeowners from being taxed on property appreciation (gain in value). In 1978, California voters approved a law that only allowed base-year values of real estate to increase 2% per year, therefore keeping owner’s property tax increase at a manageable level. Unless there was a change in ownership, this property tax could only increase at a rate less than or equal to 2% per year.
Because California real estate increases in value at such a rapid rate, many people feared selling their homes because their tax basis would jump up to a much higher amount, even when downsizing.
For example: Let’s say you purchased a home in 1972 for $85,000. For tax purposes, the value only increased at 2% per year, giving the value of approximately $141,000 in 2005. You are currently paying a little more than $1,400 in property taxes per year. The problem people faced was when they went to sell their home and downsize to a new home. Although you are paying taxes on a $141,000 value, your home will actually sell for $700,000. You then downsize to a new home and pay $500,000 for it. So even though you are living in a smaller, less expensive home, your taxes would have increased to 5 times what they were prior to moving.
This is why Proposition 60 was created, so seniors could keep their prior, low tax basis and downsize without drastically increasing their property taxes.
Proposition 60 is a California law that allows any person who is at least 55 years of age (at the time of the sale of their primary residence) to transfer the base-year value of the original property to a replacement dwelling of equal or lesser value within the same county.
Proposition 90 allows transfers to other participating counties, which currently includes Santa Clara, San Mateo, San Diego, Alameda, Los Angeles, Kern, Modoc, Orange, and Ventura. In order to benefit from either of these propositions, a form must be submitted to the county you are moving to. At this time it is taking Santa Clara County approximately six months to process requests, so this paperwork needs to be filled out well in advance of selling your property.
You are allowed this transferred tax base only once in your lifetime. However, the legislature has created an exception if a person becomes disabled after receiving the property tax relief, and the person may transfer the base-year value a second time because of the disability. A separate form for disability must be filed.
How to Implement Proposition 60
To qualify for Proposition 60 you must be 55 years of age or older (only one spouse must be 55 years of age or older). Secondly, you must file a “Claim for Base Year Value Transfer” with the Recorder and Assessors office for the county you live in. I can help you with this process before listing your property. The Recorder and Assessors office will then issue a supplemental assessment notice that will transfer your base year value to the new residence. The lower base year value cannot be transferred until the original home is sold; so if the replacement home is purchased first, there may be a period when you will have to pay the higher tax; but only until you sell your first residence. You will also receive a refund check to help you pay the higher taxes until the next full tax year when your former base year value will appear on the regular bill.
Following is a list of eligibility requirements for Proposition 60:
The replacement property must be the owner’s principal residence.
The seller of the original residence, or a spouse residing with the seller, must be at least 55 years of age as of the date that the original property was sold.
The replacement property must be of equal or lesser “current market value” than the original.
The replacement property must be purchased within the same county.
The replacement property must be purchased or constructed within 2 years (before or after) of the sale of the original property.
The owner must file an application within three years following the purchase date or new construction completion date of the replacement property.
This is a one-time only filing.
In most instances, if more than one owner of an original property is eligible for Proposition 60, they must choose among themselves which one will use the benefits.
Commonly Asked Questions Regarding Propositions 60 and 90
Question: If I sell my current residence, can my replacement property by in any county of California and still be eligible for Proposition 60/90?
Answer: No. In order to be eligible for Proposition 60 benefits your replacement property must be in the same county. In order to be eligible for Proposition 90 benefits, your replacement property must be in one of the following counties: Santa Clara, San Mateo, San Diego, Alameda, Los Angeles, Kern, Modoc, Orange, and Ventura.
Question: Can a taxpayer apply for and receive the benefit of Proposition 60/90 numerous times during the course of his/her lifetime?
Answer: No. Only claimants who have not previously been granted this property benefit are eligible. This is a one-time benefit.
Question: Is it true that only one claimant need be at least 55 years of age as of the date of the sale of an original property in order to qualify?
Question: If I get Proposition 60/90 benefits will I still have to file for a Homeowners’ Exemption on the replacement property?
Answer: Yes. You must file for a Homeowners’ Exemption on the replacement property. It is not granted automatically.
Question: If we are getting divorced can we split the benefit of Prop. 60/90?
Answer: No. Only one Co-Owner may receive the benefit, and the Co-Owners must determine this between themselves.
Question: What is meant by “equal or lesser value” of a replacement property?
Answer: It depends upon when you purchase the replacement property. In general, “equal or lesser value” means one of the following:
100% or less of the market value of the original property, if the replacement property is purchased prior to the sale of the original property.
105% or less of the market value of the original property, if the replacement property is purchased within the first year after the original property is sold.
110% or less of the market value of the original property, if the replacement property is purchased within the second year after the original property is sold.
Question: When making the “equal or lesser value” test comparison, is a simple comparison of the sales price of the original property to the purchase price of the replacement price all that is needed?
Answer: No. The comparison must be made using the full market value of the properties. This is not determined by sales or purchase price because sometimes that is not indicative of fair market value. The Assessor must determine the market value of each property, which may differ from sales price.
Question: Can a claimant transfer the base tax from the original single family home to a replacement duplex or multi-unit residence (living in one unit and renting the others)?
Answer: Yes. The owner could carry the factored base year value of the original property to that portion of the replacement parcel that is his/her principal place of abode, and the land that constitutes a reasonable size to embody a site for the residence. However, that portion comprising the abode must be of equal or lesser value than the original property.