Steve Coker, CFP
Moving in Retirement? How to Keep Your California Property Tax Basis
There are a few excellent tax breaks for retirees in high tax California and Propositions 60 and 90 are two of the best. These laws allow property owners over the age of 55, subject to some restrictions, to sell their principal residence in California and transfer their Property Tax basis to a new home of equal or lesser value. Simply put, the laws provide a way for retirees to move to a new home without resetting their Prop 13 tax basis, potentially saving thousands of dollars in property taxes each year.
A little background may be helpful. Most California homeowners are familiar with Proposition 13, the California property tax law, enacted in 1978 that sets a limit on property taxes, 1% of the assessed value of the home. More importantly, Prop 13 sets a 2% maximum increase on the assessed value. As a result, homeowners in California pay a relatively consistent property tax each year with only small annual increases and those who have stayed in the same home for many years often pay a much lower property tax bill. As intended, Proposition 13 significantly helps retirees and those on a fixed income, allowing them to stay in their homes instead of being taxed out of their homes when home prices rise.
Of course, Proposition 13 allows the property tax basis to be reset when the homeowner purchases a new home, so retirees who move could be hit with a significant jump in property taxes. This is where Proposition 60 and 90 can help. These laws allow property owners age 55 or older to transfer their original property tax basis to a new home of equal or lesser value. There are some restrictions, so it is important to understand the details. Here are a few of the key items to consider.
First, it is important to confirm that the new property qualifies. Both properties must be your principal residence and the new property must be of equal or lesser value. Secondly, the property must either be within the same county or be a transfer to a county that allows the basis to transfer. Proposition 60 allows for the transfer of property tax basis within your same county (intracounty). Proposition 90 allows for transfer of property tax basis to another county in California (intercounty), but only if the county has signed an ordinance authorizing the transfer. As of the date of this writing only 11 California counties have signed such an ordinance:
Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernadino, San Diego, San Mateo, Santa Clara, Tuolumne, Ventura
Secondly, it is important to remember that this is a one-time only exemption, so carefully consider the move before filing.
Lastly, you must purchase the new property within two years (before or after) of the sale of the original property, and you must file a claim for the exemption within 3 years of the purchase date or construction completion date of the new property.
It’s a good idea to check with you local County Assessor’s office to verify eligibility. There are also some great resources on the State of California Board of Equalization website: http://www.boe.ca.gov/proptaxes/prop60-90_55over.htm. Of course, you can also give us a call and we would be happy to discuss your situation with you.