Tax Implications of Downsizing
Under Prop. 13, property in California is reassessed at market value only when it is sold. In between changes of ownership, the assessed value can only go up by an inflation rate of up to 2 percent per year. If the homeowner makes a major improvement, it’s added to the assessed value, but it does not trigger a reassessment of the entire property.
As a result, people who have owned a home for many years pay far less in property tax than they would if they purchased the same house today, or in some cases even a smaller one.
In the past, many Marin homeowners have taken advantage of a state law that gives homeowners who are at least 55 or disabled a once-in-a-lifetime chance to transfer the property tax base from their primary residence to one of equal or lesser value. Prop. 60 lets longtime homeowners 55 or older who have a low property tax assessment avoid a potentially steep tax increase, even on a cheaper home.
The catch is that the replacement home must be in the same county as the current property. Prop. 90 exceptions allow portability of tax base to replacement homes in eleven California counties that accept inter-county transfers of property tax assessments. In the Bay Area, only San Mateo, Santa Clara and Alameda counties participate.
As a result, people who have owned a home for many years pay far less in property tax than they would if they purchased the same house today, or in some cases even a smaller one.
In the past, many Marin homeowners have taken advantage of a state law that gives homeowners who are at least 55 or disabled a once-in-a-lifetime chance to transfer the property tax base from their primary residence to one of equal or lesser value. Prop. 60 lets longtime homeowners 55 or older who have a low property tax assessment avoid a potentially steep tax increase, even on a cheaper home.
The catch is that the replacement home must be in the same county as the current property. Prop. 90 exceptions allow portability of tax base to replacement homes in eleven California counties that accept inter-county transfers of property tax assessments. In the Bay Area, only San Mateo, Santa Clara and Alameda counties participate.
COUNTIES ACCEPTING INTER-COUNTY TRANSFERS
- Alameda
- El Dorado
- Los Angeles
- Orange
- Riverside
- San Bernardino
- San Diego
- San Mateo
- Santa Clara
- Tuolumne
- Ventura
For those wanting to downsize with their tax base and stay in the North Bay, options are limited. For example, if you wanted to sell your Marin home and relocate to Sonoma, you would lose your original tax base. With such low inventory of homes on the market in Marin, many older people who might want to downsize are finding it more affordable to stay in their larger homes. Legislation in the State Assembly would expand property tax portability by allowing such transfers to any county in the state starting 2019. Bill AB1322 introduced by Raul Bocanegra, D-San Fernando in February 2017 is pending during the current 2017-2018 legislative session and was last revised in June.
This bill is controversial and requires two thirds approval. Those in favor cite potential improvements to limited housing supply by providing an incentive for empty-nesters to move out of bigger homes and make their home available for younger families. Those who are opposed it say it would result in a loss of tax revenue to local governments.
Please let me know if you would like updates on legislation on this issue. if you have any specific tax related questions, my team of specialists are a great resource as well.
Sources:
https://www.homehero.org/blog/lifestyle/important-california-property-tax-exemptions-for-seniors
http://www.sfchronicle.com/business/networth/article/How-older-CA-homeowners-can-get-property-tax-6778070.php
http://www.sfchronicle.com/business/networth/article/Bill-would-expand-property-tax-portablity-for-11140430.php
https://www.billtrack50.com/BillDetail/832035
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180ACA7
This bill is controversial and requires two thirds approval. Those in favor cite potential improvements to limited housing supply by providing an incentive for empty-nesters to move out of bigger homes and make their home available for younger families. Those who are opposed it say it would result in a loss of tax revenue to local governments.
Please let me know if you would like updates on legislation on this issue. if you have any specific tax related questions, my team of specialists are a great resource as well.
Sources:
https://www.homehero.org/blog/lifestyle/important-california-property-tax-exemptions-for-seniors
http://www.sfchronicle.com/business/networth/article/How-older-CA-homeowners-can-get-property-tax-6778070.php
http://www.sfchronicle.com/business/networth/article/Bill-would-expand-property-tax-portablity-for-11140430.php
https://www.billtrack50.com/BillDetail/832035
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180ACA7
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