AGE 55+ HOMEOWNERS AND PROPERTY TAXES
or What is Prop 13, Prop 8, Prop 60 and Prop 90?
by John Occhi, REALTOR®, SRES®, CPRES®, ePRO®
March 3, 2014
Real Estate values have increased significantly across the Temecula Murrieta Valley and as a result property taxes will be going up, since many homeowners benefited from a Temporary Reduction in Value under the provisions of Prop 8.
As a result of the increase in equity, many homeowners age 55+ will want to sell the homes they’ve been in for numerous years, cashing out and downsizing to a smaller more comfortable and manageable residence, enjoying the promises of their dream retirement.
Ahhh, but it gets so confusing when all of the different property tax laws are looked at and applied to the sale of their current home. So let me offer a snapshot of what each significant legislation is and how it impacts your decision to sell your Temecula - Murrieta real estate now and find that dream home.
PROP 13 - People's Initiative to Limit Property Taxation – Amendment to the California Constitution in 1978
Prop 13 was overwhelming passed by the voters to limit skyrocketing property taxes, offering both the State of California and the homeowner predictability in their income/property taxes.
A base year was established, typically the purchase price in an arms-length transaction. The assessed value will increase no more than 2% per year. This new value is referred to as the Trended Base Year or the Prop 13 Factored Base Year; or simply the Base Year Value.
Prior to Prop 13 becoming the law of the land, property taxes skyrocketed in good times when home values increased. Consequently, homeowners who had been in their homes for numerous years, ended up with property tax bills that were much higher when the market imp-proved and home values went up. There were instances where taxes more than doubled in less than 5 years. This just was not acceptable.
PROP 8 – Temporary Reduction In Value
Prop 8 was passed by the California voters as a constitutional amendment that gave the homeowner the ability to appeal a property tax bill if the assessed value exceeded the current fair market value. The tax payer may have either applied for the reduction formally or the County Assessor may have reduced the value on their own.
The reduction in value results in a reduction of property taxes due. Bear in mind this is a temporary reduction only. If the reduction is warranted for the following year, it must be applied for, for each year the value remains below the Prop 13 Base Year Value.
Once the market value equals or exceed the Base Year Value, the County Assessor should then adjust the taxes back to the Base Year Value, which has continued to increase by 2% per year – despite the reduction.
PROP 60 / PROP 90 – TRANSFER OF BASE YEAR VALUE
Both Prop 60 and Prop 90 allow for a homeowner age 55+ to transfer the Prop 13 Base Year Value to a new home under the right conditions. The tricky part is counties have the option of opting out of Prop 90. Currently (as of 9/19/13) there are 9 counties participating in the program, including Riverside County. For more information on the others, visit the Board of Equalization website.
There are several requirements that must be met in order for a homeowner to sell one property and buy another while keeping the same low taxes they’ve been paying for years. Let’s take a look at the requirements for both Prop 60 & Prop 90:
- Either the seller or the spouse selling a home must be age 55+, as of the date the original home is transferred;
- The replacement home MUST be your principal residence and must be eligible for either the homeowners’ exemption or the disabled veterans’ exemption;
- The new home must be purchased for the same amount as the sale of the original home or less;
- The Base Year Value cannot be transferred to the new home until the old home has been transferred to the new buyer;
- The replacement home has to be acquired within 2 years of the sale of the original home – either purchased or construction completed;
- The application must be filed within 3 years following the purchase or construction of the new home.
The Prop 60/90 Benefit can only be used one time. If the claimant or the claimants spouse has ever been granted relief under either of these provisions they cannot be granted relief again.
The difference between the two laws is that Prop 60 applies to purchases in the same county and Prop 90 applies to homes in other California counties. In other words, regardless of where you live in California, if you meet the requirements for relief under Prop 60, you can purchase a home for equal or less than the sale amount of your original home and transfer the factored Prop 13 Base Year Value to your new home so long as you remain in the same county as where your original home is located.
Riverside County and 8 others in the state believe it is wise to attract Age 55+ homeowners’ to their communities because the spending power they bring to the local economy will far outweigh the difference in property taxes. So, Prop 90 allows for any California homeowner that meets the requirements may purchase Riverside County Real Estate and transfer their Prop 13 Base Year Value property taxes to their new home.
This article is intended to be informational and not offering any tax or legal advice. There is obviously much more to these 4 complex legislative issues than can be offered here. My intention is simply to open the topic for general discussion and further research by anyone who is interested. If you would like to know more about purchasing real estate in the Temecula – Murrieta Valley and need the help of a seasoned Senior Real Estate Specialist, we’d be honored if you called.
John Occhi, REALTOR®, SRES®, CPRES®, ePro®
Mason Real Estate