- Prop 60
Retirement Tax Basis
Many people have asked exactly how the Prop 60 and Prop 90 works for them to be able to take their Property Tax Basis under Proposition 13 with them to a new home, and what the differences are. The first rule is that one spouse or owner must be 55 years or older.
Second you need to confirm that the County you want to move into participates in the transfer of the basis – this is Prop 90. Many Counties will allow you to transfer within the County – this is Prop 60, and take your basis with you, subject to conditions, but only a few allow you to transfer from one County to another County. Call the County Assessors Office to be sure because occassionally Counties will change their acceptance policy.
Proposition 60 applies if you move within your same County
Proposition 90 applies if you move to a co-operating County
CONDITIONS: Props 60 and 90 apply if you “trade down” (i.e. the new home costs less than the sales price of the old home).
> If you buy a New Home 1st; then sell the Old Home, you must buy down in price.
> If you sell the Old Home1st; then buy the New Home:
- In 1st 365 days after the sale of Old Home, you may go up 5% in the purchase price of New Home.
- If you buy a New Home more than 1 year from the sale of Old Home, but less than 2 years, you may go up 10%.
- You have to buy down and take your base with you OR
- You can purchase a home for what you sell for sales price + 5% within the 1st year after you sell OR
- You can purchase what you sell for sales price + 10% after 1 year from sale of prior home.
So IE: If you sell your home for $2 million then within the first year you can buy a home for $2.1 Million OR you could buy a maximum $2.2 million after 1 year.
CAPITAL GAINS: The other issue that you MUST talk to your Tax Accountant is the possibility of Capital Gains in the sale of your home. If you have had your home long enough to still have your Proposition 13 in effect, your basis is probably very low. In the sale of your home, you will have an exclusion of $250,000 each, ($500,000 per married couple), from taxable gains. Gains over that amount – chances are pretty good that you may have a taxable gain event.
OVER 55? CALIFORNIA PROPERTY TAX RELIEF
Since its passage, Proposition 13 prohibits property tax increases until property ownership is changed.
If either spouse is over age 55 (when the old home is sold), PROP 60 allows replacement of a primary residence with a new home of equal or lesser value (but see below) within the same county and transfer of the Prop 13 assessed valuation from the old home to the new property. This is allowed once in your lifetime, and a spouse who has done it before ‘taints’ both spouses.
PROP 90 allows counties to elect to accept transfers of Prop 13 values for moves from other counties when a primary residence is replaced with a less expensive (but see below) home. If you are over 55 and move into a county which accepts Prop 90, you may take your old, lower Prop 13 value, regardless of from which county you move.
Using Prop 90, you can sell your $400,000 San Francisco home [assessed value $80,000] and move to a new $300,000 home in San Mateo; the new San Mateo assessed value will be $80,000!
7 COUNTIES WHICH ACCEPT PROP 90 (Current as of 6/1/2008)
Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura. [Contra Costa, Inyo, Kern, Riverside, Modoc, Monterey, and Marin have dropped out of the Prop 90 program.]
- As always, speak with your own personal Tax Consultant prior to making any moves involving your tax basis.
- To read about the Howard Jarvis Tax Act, go to http://www.hjta.org/node/320
Realty World Executive Advantage
San Jose, California