———————————————————-
As of April 1, 2021, the below provisions of Proposition 60 and 90 are replaced and expanded by Proposition 19.
The same rules apply as below, only after April 1, 2021, you will be able to purchase a new property of greater value than your original property. This is new and significant. A blended tax rate between the old home and the difference in value will take over. Moreover, this transfer can be accomplished three (3) times, vs the current one (1) time benefit. Contact our office today to discuss how to take advantage of these new benefits effective April 1, 2021.
———————————————————-
WARNING — CALIFORNIA PROPOSITION 19 UPENDS THIS ENTIRE PROCESS. For those 55 and older, and disaster victims, the benefits of new Prop 19 are similar (and expanded) to those described below, but family generational transfers take a huge tax hit.
Review our article on Proposition 19 and its dire reduction of the family transfer tax benefit here.
———————————————————-
Simply put, Proposition 60 (moving within the same County) and Proposition 90 (moving between two Counties) allow homeowners 55-years or older to “transfer” their property tax basis (i.e. what they currently pay in property taxes, some call their “Prop 13 basis” or “Proposition 13 basis”) to a new residence of equal or lesser value (actually, 100%, 105% or 110% of the value, depending on the timeline). There are of course conditions, timelines and guidance as to pricing, all detailed below.
Proposition 60 and Proposition 90 ultimately allow a homeowner to “downsize” or outright move to a new location without fear of their property tax bill increasing – indeed, if done correctly, they will pay the same property taxes they pay now, regardless of the difference in the price they paid for their original home vs. the price they pay for the new home (which, for those owners who purchased many years ago, thanks to California’s Proposition 13, their taxes remain low, tied to the value of the property when they purchased it, not the current market value as would be the case for most new purchases).
Without Proposition 60 and Proposition 90, anyone moving and purchasing a new home, would pay property taxes based on the market value of the new purchase price. Property taxes in Southern California are generally one percent (1%) of the value at the time of purchase (with many localities adding on additional taxes, bonds and fees above-and-beyond the actual 1% property tax). Thus a $900,000 purchase would result in an annual property tax bill of $9,000. With Proposition 60 and Proposition 90, a $900,000 purchase (complying with all other requirements) will result in an annual property tax bill exactly same as they are currently paying, whatever the amount. The savings cannot be understated – many current owners are paying under $1,000 in property taxes based on the value at the time of their initial purchase many, many years ago. This effectively “saves” that owner thousands of dollars a year in property taxes.
Example: Homeowner purchased her Newport Beach residence in 1960 for $30,000 ish…. Thanks to Proposition 13, she currently pays about $700 in annual property taxes. The current value of the home is $2mm. Homeowner desires to downsize and move closer to her grandchildren in another part of Newport Beach. Homeowner sells her current residence for $2mm and purchases a new home for $1.5mm. Without Proposition 60 and Proposition 90 her new property taxes would be $15,000 per year. With Proposition 60 and Proposition 90, her new property taxes remain $700, saving this homeowner $14,300 per year, for as long as they own their home.
Moreover, Proposition 58 and Proposition 193 allow a parent or grandparent to then transfer their tax-basis to their children or grandchildren. (Read here: https://lucas-real-estate.com/2018/09/propositions-58-193-and-13/)
Additionally, the whole concept and process frees up much-needed real estate supply for other potential buyers, as many sellers using Proposition 60 and Proposition 90 would not move if they could not transfer their property tax basis. Without this aging population moving and selling their homes, the supply imbalance in California would only be exacerbated.
Proposition 60 and Proposition 90 Requirements:
- County – Both the original property (former residence) and its replacement (new residence) must be located in the same county under Proposition 60. Or, under Proposition 90 (moving to a new county) the new county must have adopted Proposition 90 (check with the new county to ensure).
- Age – As of the date of transfer of the original property, the seller or a spouse living with the seller must be at least 55 years old.
- Must Have Previous Exemption Eligibility / Primary Residence – The original property must have been eligible for the Homeowners’ Exemption (i.e. was the primary residence) or entitled to the Disabled Veterans’ Exemption.
- Value – The replacement dwelling must be of “equal or lesser value” than the original property. (HOWEVER – this does not mean equal under most timelines and does not necessarily mean the purchase and sales price)…
- Timeline of Value: 100% of the market value of an original property if a replacement dwelling is purchased before the original property is sold; 105% if a replacement dwelling is purchased within one year after the sale of the original property, and; 110% if a replacement dwelling is purchased within the second year after the sale of the original property.)
- “Market Value” the Assessor may determine the market value for each property, which may differ from sales price. Thus if you purchased a replacement property below market value the Assessor may well contend a higher value than your actual purchase price.
- Time / Two (2) Years – the replacement dwelling must be purchased or newly constructed within two (2) years (before or after) of the sale of the original property. There is NO grace period.
- Reappraisal of Old Property – The original property must be subject to reappraisal at its current fair market value as the result of its transfer. In other words, you must sell your former residence, you cannot gift it to children or others.
- Filing Claim – A claim for relief in Orange County must be filed within three (3) years of the date a replacement dwelling is purchased or new construction of a replacement dwelling is completed to receive the full relief. Check with each county to determine their claim requirements.
Frequently Asked Questions:
Q. Is it true that only one claimant, out of several co-owners of a replacement dwelling, need be at least 55 as of the date of sale of an original property?
A. Yes, but the claimant must be an owner of record. Either the claimant or his/her spouse must also have been an occupant of the original property and at least 55 years old on the date of sale.
Q. Can a taxpayer apply for and receive the benefit of Proposition 60 or 90 more than once?
A. No, this is a one-time benefit. You are not eligible if you have been previously granted this benefit.
Q. What is meant by “equal or lesser value” than the original dwelling?
A. In general, “equal or lesser value” means:
100 percent of the market value of an original property if a replacement dwelling is purchased before the original property is sold.
105 percent of the market value of an original property if a replacement dwelling is purchased within one year after the sale of the original property.
110 percent of the market value of an original property if a replacement dwelling is purchased within the second year after the sale of the original property.
Q. Is the “equal or lesser value” test a simple comparison of the sales price of the original property and the purchase price or cost of new construction of the replacement dwelling?
A. No. The comparison must be made using the full market value of the original property and the full market value of the replacement dwelling as of its date of purchase or completion of new construction. This is important because sales prices are not always the same as market value. The Assessor must determine the market value for each property, which may differ from sales price.
Q. If the current full cash value of my replacement dwelling slightly exceeds the full market value of my original property, can I still receive a partial benefit?
A. No. Unless the replacement dwelling satisfies the “equal or lesser value” test, no benefit is available.
Q. May I give my original property to my child and still receive the Prop. 60/90 benefit when I purchase a replacement property?
A. No. The law provides that an original property must be sold for consideration and subject to reappraisal at full market value at the time of sale. Original property transferred to a child or disposed of by gift or devise does not qualify.
Q. Is the Assessor prevented from issuing supplemental assessments when the factored base-year value is transferred from an original property to a replacement dwelling under Proposition 60?
A. No. When the replacement dwelling is purchased or newly constructed, the Assessor is required by law to issue supplemental assessments (positive or negative) for all transactions that result in a base year value change, including those that qualify under Prop. 60. (Revenue and Taxation Code Section 75).
Q. Can I qualify for the benefits of Prop. 60/90 when I sell my original property (owned by me alone) and purchase a replacement dwelling with several co-owners? What if I own only a 10 percent interest in the replacement dwelling?
A. Yes. The base year value of your original property can be transferred to your replacement dwelling, as long as you are otherwise qualified. You may receive the benefits of Proposition 60 regardless of how many co-owners of record there are on the replacement dwelling. In this situation, the total market value of the original property is compared to the total market value of the replacement property regardless of the fact that the qualified principal claimant may only own 10 percent of both original and replacement dwelling properties.
You and your spouse, as the claimants, will use your “one time only” benefit. An owner of record of the replacement property who is not the claimant’s spouse is not considered a claimant, and a claim filed for the property will not constitute use of the one-time-only exclusion by the co-owner even though that person may benefit from the property tax relief.
Q. Can two otherwise qualified taxpayers who have recently sold their separately owned original properties combine their claim for Proposition 60/90 benefit when they buy a single replacement dwelling together?
A. No. they can only receive the benefit if one or the other, not both together, qualifies by comparing his or her original property to the jointly purchased replacement dwelling. The implementing legislation specifically disallows combining a claim, whether or not the co-owners of the replacement dwelling are married.
Q. May I, as a former co-owner of an original property, receive partial benefit on my replacement dwelling, along with other co-owners who purchase separate replacement dwellings?
A. No. The law provides that only one co-owner of an original property that is, or was, qualified for the Homeowners’ Exemption may receive the benefit in a situation like this where all co-owners purchase separate replacement dwellings. The co-owners must determine, between themselves, which one should receive the benefit. Only in the case of a multiple-residential original property, where several co-owners qualify for separate Homeowners’ Exemptions, may portions of the factored base year value of that property be transferred to several qualified replacement dwellings.
Q. What if I am the co-owner of a property with more than one residential unit?
A. A portion of the original property may qualify for the Homeowners’ Exemption for you. The base year value of that portion can be transferred to your replacement dwelling. The other portion(s) of the original property may qualify for a separate Homeowners’ Exemption(s). The base year value(s) of that other portion(s) can be transferred to another replacement dwelling(s).
Q. Does a person qualify for the Prop. 60/90 benefit when he/she sells an original property, then buys a replacement dwelling within two years, but no longer qualifies for a Homeowners’ Exemption on the original property that sold nearly two years before?
A. Yes. The statute requires that the original property be eligible for the Homeowners’ Exemption at the time of sale. It is eligible if the claimant owns and occupies the property as his or her principal residence at the time of sale.
Q. Can I receive Proposition 60. benefits if my original property is outside Orange County but my replacement dwelling is inside Orange County?
A. No. Both properties must be within Orange County.
Q. Can I receive Proposition 60 benefits if my original property is inside Orange County but my replacement dwelling is in another county in California?
A. You may qualify under Proposition 90. Call the county Assessor’s Office where the replacement dwelling is located and ask if that county allows transfers of base year values between counties.
Q. If the transfer of my base year value to the replacement dwelling results in a supplemental assessment that is a refund, do I still have to pay the existing annual roll tax bill on the replacement property or will that bill be adjusted to reflect the new, lower value?
A. Unfortunately, you must pay the existing annual roll tax bill on your replacement property. That bill cannot be adjusted or canceled to reflect the Prop. 60 benefit. Additionally, you must pay that bill before any refund resulting from the Prop. 60 benefit will be sent to you.
However, after the existing bill has been paid, you will later receive a refund that will reflect the Prop. 60 benefit. In other words, when the entire process is complete, you will not have overpaid any taxes, (Revenue & Taxation Code Section 75.43.c).
Sources:
Orange County Assessor
http://www.ocgov.com/gov/assessor/programs/55plus#470
North American Title Company
California State Board of Equalization
http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm
-Devin Lucas
Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate.
Lucas Real Estate
Real Estate Law | Real Estate Transactions | REALTORS®
lucas-real-estate.com | devin@lucas-real-estate.com | BRE No. 01912302
949.478.1623 office | 888.667.6038 fax
2901 West Coast Highway Suite 200
Newport Beach | California | 92663-4023
| Official Site | Blog | LinkedIn | Facebook | Pinterest | Google + | Yelp | Avvo | Twitter | Zillow |
——— Disclaimer ———
The content on this blog is for informational purposes only. Nothing on this blog should be construed to be legal advice, and you should not act or refrain from acting on the basis of any content on this blog without seeking appropriate legal advice regarding your particular situation, from an attorney licensed to practice law in your state. The content on this blog is not guaranteed to be correct, complete, or up to date. Devin R. Lucas’ office is in Newport Beach, California and is only licensed to practice law in California. Please be advised that Devin R. Lucas only provides legal services or advice pursuant to a written legal services agreement. The content on this blog is not intended to, and does not, create an attorney-client relationship between you and Devin R. Lucas, nor does our receipt of an email or other communication from you. Some jurisdictions may consider this site to constitute attorney advertising; accordingly, please be advised this is an advertisement.
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that, to the extent this communication (or any attachment) addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment).
