I know it’s hard to believe that there might be a tax break for Californians, but there is an initiative on the ballot in November to help those 55 years old and older as well as the severely disabled with their property taxes. If you are under 55 years old and of able means, don’t stop reading because YOU benefit too! If you are thinking of buying a home, this will affect you.
The state of California has been in a home inventory crisis for years. In San Diego where I live, inventory for homes under $750,000 are at a three month supply (a normal market is six months). Buyer demand is outpacing the supply causing home prices to appreciate at abnormally high rates and making ‘bidding wars’ among buyers common place. There simply is not enough inventory to match the demand. There are many reasons for low home inventory, but according to the California Chamber of Commerce, almost three-quarters of homeowners 55 and older haven’t moved since 2000 – that is almost TWO decades! To put that in perspective, the National Association of Realtors found that the typical seller lives in their home for 10 years before selling. Seniors feel they are experiencing a “moving penalty” because of rapidly increasing property taxes that accompany appreciating home prices. Often on a fixed income, Seniors fear that they will not be able to afford a big property tax increase if they sell their existing home and buy another one, thus discouraging them from moving. I’ve also heard this same sentiment come from financial planners stating it is an issue among their clients.
Propositions 13, 60, 90 and 5 (proposed)
Help is on the way! There are a couple of Propositions currently in place to help with this, but they have their limits. Proposition 13 limits property taxes to one percent of assessed value at the time of purchase even if the home value increases. This has enabled homeowners not to worry about drastically increasing property taxes while they own their home. Proposition 60 and 90 are extensions of Proposition 13 and allow those 55 years and older or severely disabled to transfer their property tax base to another home if the purchase price of the new home is equal to or less then the sale price of original residence. You can only use this transfer once in a lifetime and if your spouse already did a transfer it disqualifies the other spouse. You can also move to a different county, but only if that county accepts such transfers (at last count only 11 of the 58 counties in CA allow it).
Proposition 5 will further expand Proposition 13 and would allow those 55 years and older and the severely disabled to transfer some of their Proposition 13 tax basis to a home of any price, located anywhere in the state, any number of times. It eliminates the “moving penalty” and allows this group to move somewhere safer, more practical, and/or closer to family without a significant increase in their property taxes that they otherwise might not be able to afford. If the new home is a different value than the prior home, the initiative would allow for an adjusted value between the old and new values.
Adjusted Values – upward and downward
If the new home is higher in value then the prior home, the assessed value would be adjusted upward. If the new home has a lower market value then the prior home, the assessed value would be adjusted downward. Here are the formulas to calculate and I have also provided two examples of an upward and downward calculation.
Upward Adjustment calculation:
(assessed value of their old home) + [(the new home’s market value) – (the prior home’s market value)]
Downward Adjustment calculation:
(assessed value of their old home) × Tax Base Multiple
*Tax Base Multiple = the new home’s market value ÷ the prior home’s market value
Arguments against Proposition 5 warn the measure would lead to billions in lost tax revenue. Proponents challenge this and point to new revenue that would come in as older homes are finally taxed at their current value. In my opinion, retirement security is a huge issue for millions of aging Californians on fixed incomes. Empowering the severely disabled trapped in inadequate homes and allowing them to be near family members to help aid in their care is needed. Protecting these groups is a good idea. In addition, California continues to deal with the challenges of a massive housing shortage which needs more inventory to free up in modest-priced and move-up housing for young families. I’ll be voting YES on Proposition 5. Please share this information with any Californian you know so they know the importance of this measure and can vote with confidence.
About the Author:
Sarah Lindsey (Home Loan Gal) is a mortgage adviser with over 13 years of industry experience. Her core values are based on one simple approach – provide clients with trusted expertise, personalized information, specific to their needs. Sarah currently serves as a Vice President with Synergy One Lending, is a regular guest on the television show, The American Dream with Craig Sewing, is a resource partner for the San Diego Chapter of the Financial Planner’s Association, is a board member for Junior Achievement (a non-profit focused on bringing financial education to all school age children) and can be heard on the radio station AM 1170 advocating consumer awareness on financing.