If You Are Over 55, Don't Forget About the California Proposition 19 Tax Transfer Benefits

Long Beach bungalow house

Are you a possible candidate for a Proposition 19 tax transfer?  California's Proposition 19 was passed in November of 2020 and made changes to property tax benefits for families, seniors, severely disabled persons, and victims of natural disaster throughout the state starting in 2021.  For a general summary of this tool, and examples of how homeowners can save, please go to Your Local Realtor Can Help You Save When Moving With a Prop 19 Tax Break. These current changes allow a homeowner who is over 55 years of age, severely and permanently disabled or whose home has been substantially damaged by wildfire or natural disaster to transfer the taxable value of their primary residence to:  

• A replacement primary residence
• Anywhere in the state
• Regardless of the value of the replacement primary residence (with adjustments if "greater" in value)
• Within two years of the sale
• Up to three times (but without limitation for those whose houses were destroyed by fire) 

As with many pieces of legislation, this bill in its original form needed clarification in order for County Assessors to properly implement it, a process that is still continuing.  While prior Propositions 60 and 90 (intracounty and intercounty legislation) had certain limitations which the new Proposition 19 has expanded upon, Prop. 19 has also had some restrictions in place that didn't exist before, and it's important for owners to understand how it will work for them.

In general though, this bill is very useful, especially considering the overall cost of living in California in residential real estate prices, in allowing property tax base transfer reductions for homeowners over age 55, and other applicable owner categories, which will save money on the property tax of the new home purchase.  And, it may be applied up to three times for standard 55+ owners, but has no such transfer limitation where homes were destroyed by fire.

If you are considering moving now or in the future, please obtain more information from your Realtor professional and/or tax person about this tax transfer process.  Be aware also that at this time many County Assessors offices are dealing with many applications and homeowners are having to be patient.  If you are in Los Angeles County, go to assessor.lacounty.gov/prop19 for more direct information, and a forms tab to submit for your application. 

I am available by phone, text or email -- if you would like additional more specific information in a Q&A format, please contact me about this or any other aspect of selling a home.

Julia Huntsman, REALTOR, Broker | http://www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

Vacation or Second Homes

Sometimes, actually a lot of times, people think they don’t have the ability or resources to accomplish a certain goal, and then it truly becomes unattainable. A timely quote for this might be, “People don't plan to fail; they fail to plan.” (This was most recently said by a REALTOR in New Jersey, but don’t think he was the first.)

First, you have to ask yourself what you really want—possibly this will lead to workshops on goal-setting, or minor, then major, soul searching, then therapy. We’ll leave that up to you, but we do recognize that for most people making transitions can take time. Fast forward and move onto your second home strategy.

A down market of new and existing home sales spells opportunity, and the IRS allows for certain benefits, if you plan well. Do you plan to make it your future retirement home? Then area will be especially critical. Have you factored in your upkeep and expenses for maintaining a second home vs. an annual summer rental? Are you living in the desert and wishing for ocean breezes—if you’re calling on a coastal listing and it’s 108 degrees where you live now, you might be calling out of desperation (see “Fools Rush In” at the link) rather than a good long-term plan.

Have you talked with your tax accountant or attorney first to be aware of how you can gain or lose with the IRS—how many days you may or may not rent out the second home, how to avoid the Alternative Minimum Tax or minimize it, or how your Subchapter S corporation through your business can benefit you. Have you thought about your 1031 exchange and capital gains factors if you decide to turn this into an investment property, or vice-versa? If you have an vacation investment property you may be able to exchange it or convert it later to personal use:

“A section 1031 exchange lets you sell one investment property and defer the capital gains if you put the proceeds into another. You'll have to rent out that new property, too, to qualify for the tax deferral. But after renting the property out for a year, you can convert it back to personal use. There's still no tax until you sell.” (Jeffrey Schnepper is a New Jersey lawyer and CPA, personal finance columnist and the author of several books on tax strategies.)

You could be considering a family home, a smaller cabin, a condo or townhome or a duplex or a triplex near the beach where you could be gaining income on the other units. The initial planning stages may put you through some work, but it’s better than buying a property and later losing money on it because you bought it in that dream like state while you were on vacation already.

Transferring Your Property Taxes, California Prop. 90

There seem to be many inquiries about property taxes in California, so I hope you find this informative.

California voters approved Proposition 13 in the 1970's. Ordinarily, when the ownership of California real property changes, the property is reassessed at its current fair market value and the new owner pays property tax based on the reassessed value. However, the law provides certain exemptions from reassessment and, in certain instances, allows a taxpayer to transfer the base-year value of the property to a subsequent property without being reassessed. As a result of Proposition 13, a taxpayer's base-year value could be much lower than if based on the fair market value of the property. (Note: California tax code sections are Revenue and Taxation Code Sections 63.1 (dealing with transfers between parents and children, as well as grandparents and grandchildren), 62 (dealing with transfers into revocable trusts), 63 (dealing with interspousal transfers), 69.5 (dealing with transfers by persons over 55 years of age or severely and permanently disabled persons).)

Property which has had major renovations is normally subject to property tax reassessment. However, California law exempts certain property improvements from reassessment. Revenue and Taxation Code Sections 74.3 and 74.6 (dealing with improvements for disabled access), and 74.5 (dealing with seismic retrofitting improvements). Consult your tax advisor for advice.

Proposition 90.

Ordinarily under Proposition 13, the value of a home for property tax purposes is re-assessed to market level whenever a change in ownership takes place, which usually results in higher property taxes for the homebuyer.

In November 1988, the state's voters approved Proposition 90, which is designed to induce greater turnover of homes owned by senior citizens. The measure provides anyone over the age of 55 with relief from Proposition 13 by allowing them to move from one county to another without undergoing a change in their basic property taxes. (Note: there are currently a minority of counties that allow this transfer, Los Angeles and Orange Counties being two of them.)

Proposition 90 is a "local-option" law; each county has the option of participating. If a county has adopted a Proposition 90 ordinance, it accepts transfers of property tax base assessments from other California counties. If the county that the homeowner is moving from does not have a Proposition 90 ordinance, this does not affect the eligibility of the homeowner. Homeowners seeking to transfer their property tax base assessment must verify that the county to which they are moving has a Proposition 90 ordinance. Go to this list of California Counties to find information from your county tax assessor.

Proposition 60

Proposition 60 is a similar law passed by the state's voters two years prior to Proposition 90. It allows seniors to keep their property tax base assessment when they move within the same county. Proposition 60 does not require passage by a local municipality. It is state law.

Courtesy of Pacific West Association of Realtors

Baby Boomers, CA