A key topic for Homeowners who would like to downsize is “What happens to our property tax basis”. Fortunately in 1986, California voters approved Prop 60 which allows senior homeowners to transfer their property tax assessed value one time to downsize to a property of lesser value.
In the 1970’s California’s population growth created increased demand for housing. Due to inflation during the 1970s residential properties were reassessed upwards causing property taxes to increase. And property taxes fluctuated year to year based on government spending needs so that homeowners were unable to budget for property taxes. These fluctuations especially hurt senior homeowners and those on fixed incomes.
In 1978 voters approved Proposition 13 which “declared property taxes were to be assessed to their 1976 value and restricted annual increases of the tax to an inflation factor, not to exceed 2% per year. A reassessment of the property tax can only be made a) when the property ownership changes or b) there is construction done”. Proposition 13 helped to stabilize property taxes for all homeowners.
In the years following Prop 13 it became clear that some senior homeowners who had lived in their homes for many years were unable to downsize because they couldn’t afford the increased property taxes at a new property of similar value. They remained stuck in larger family homes and couldn’t afford to move to a smaller property or closer to grandchildren which also hurt the supply of family homes for young families.
In 1986 Proposition 60 was enacted to allow homeowners 55 and older to transfer their current tax assessment to a new property of equal or lesser value if qualified. There are a number of strict requirements (especially home values) and if you miscalculate by even $1 the transfer can be disallowed. It is not complicated to submit for the transfer but it absolutely must be done correctly so advice from a tax advisor and experienced Realtor are a must.
According to the Los Angeles County Assessor:
- The replacement property must be your principal residence and must be eligible for the Homeowners’ Exemption or Disabled Veterans’ Exemption.
- The replacement property must be of equal or lesser “current market value” than the original property. The “equal or lesser” test is applied to the entire replacement residence, even if the owner of the original property acquires only a partial interest in the replacement residence. Owners of two qualifying original residences may not combine the values of those properties in order to qualify for a Proposition 60 base-year transfer to a replacement residence of greater value than the more valuable of the two original residences.
- The replacement property must be purchased or built within two years (before or after) of the sale of the original property.
- Your original property must have been eligible for the Homeowners’ or Disabled Veterans’ Exemption.
- You, or a spouse residing with you, must have been at least 55 years of age when the original property was sold.
- If you or your spouse who resides with you is age 55 or older, you may buy or construct a new home of equal or lesser value than your existing home and transfer the trended base value to your new property.
- This is a one-time only benefit. You must buy or complete construction of your replacement home within two years of the sale of the original property. Both the original home and the new home must be your principal place of residence. A claim must be filed within three years of purchasing or completing new construction of the replacement property. If a claim is filed after the three-year period, relief will be granted beginning with the calendar year in which the claim was filed.
- Once you have filed and received this tax relief, neither you nor your spouse who resides with you can ever file again. (There may be an exception for disability if qualified.)
If you are considering downsizing and would like to know more about transferring your property tax value please contact me to review the strict guidelines to protect your eligibility.
Janey Bishop, Broker (818)570-1144 [email protected]
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