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Prop 13 and N. CA RE rules re step up in tax basis?

Posted by lynne_sjo (My Page) on
Sat, May 24, 08 at 16:34

NOTE: Ignore the currently bad RE climate for this question - it is about Prop 13 and the tax implications of buying up.

I am getting conflicting information from 2 RE agents regarding how prop 13 would affect us, were we to sell our home and buy a more expensive one.

We live in Santa Clara County (San Jose), CA. Our home is worth 3x what we paid for it in 1995. I would like to sell this and purchase a home in the $1.5M range.

One RE agent is telling us that as long as one of us is at least 55 years of age, we have a one-time chance to buy a more expensive home w/o our property taxes changing. (In our case, that would mean our property taxes would remain at $300/mo instead of $1,500/mo for this scenario.)

The other RE agent is saying that the restriction on the above is that you can do it if and only if you buy a home of equal or LESSER value. That makes no sense and seems contrary to the intent of prop 13.

Who is right? Any CA RE agents or loan officers out there?

Your input would be greatly appreciated.

Thanks much,

Lynne


Follow-Up Postings:

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RE: Prop 13 and N. CA RE rules re step up in tax basis?

Your second RE is correct. You can file a claim under Proposition 60 when you buy a house of equal or lesser value in the same county. There are some conditions, such as the owner on record must be 55 or older. Not all counties allow this, but Santa Clara does.

There was an article in the Mercury News a few months ago about this, as some cities within Santa Clara County are trying to find a way out of this law. You might try doing a search on it.


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RE: Prop 13 and N. CA RE rules re step up in tax basis?

Prop 13 is cancelled when you sell. Talk to your tax person. You cannot get that back again. Prob 13 is different that Prop 60/


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Prop 13 and Props 60 & 90

Props 60 and 90 are both directly applicable to Prop 13, which limits increases in property taxes in California. Prop 60 applies when owners move within the same county, prop 90 applies when owners move to a different county. They both allow over-55 owners to transfer the base year value of the property they sell to the new property, as long as the new property has equal or lesser value.


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. This usually results in higher property taxes for the homebuyer.

In November 1988, the states 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.

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.

[Please note: Proposition 60 is a similar law passed by the states voters two years prior to Proposition 90. It allows seniors to keep their property tax base assessment when they move within the same county.]

Here is a link that might be useful: Santa Clara County Assessor's Office


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RE: Prop 13 and N. CA RE rules re step up in tax basis?

Towns, cities and counties will feel the pinch, thanks to laws like these -- and times like these. Remember when Orange County, CA declared bankruptcy? It may be possible to continue to fund emergency and sanitation services with declining revenues, but you can't float new bonds to build schools. During the Great Depression thousands of municipalities went under.

Think twice before deciding a tax advantage is an advantage in the long run.


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RE: Prop 13 and N. CA RE rules re step up in tax basis?

FWIW, there is an article in today's LA Times Real Estate section covering a couple who did just this (on an even trade) within Manhattan Beach. I'd post a link, but I think you have to be a member to see it.


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RE: Prop 13 and N. CA RE rules re step up in tax basis?

In fact, most counties did NOT sign up for reciprocal rights. I suspect it isn't as big an impact as you would think for counties.


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RE: Prop 13 and N. CA RE rules re step up in tax basis?

I think your second agent is right, however "equal or lesser value" is not EXACTLY equal or lesser. They will let you buy a house up to 5% higher in value than the one you sell, if it's within the same year. One year later, and they'll allow 10%. That's the max. It's not infinitely higher and 5% of $1.5 mil is obviously not much. So you don't get much in the way of move-up property. But costs are defrayed, so you can get creative. As in, pay commissions on your selling side AND pay them as a buyer in order to get your new house for less money and bring that tax base down. Don't you have any good agents up there? Where in Nor Cal are you located??


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RE: Prop 13 and N. CA RE rules re step up in tax basis?

Annkatherine and starjasmine have stated my understanding of these rules. I'm sure the OP has made a decision by now.


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