Keep Your Low Property Tax Basis – Or Pass It Along To Your Children

By Mary Harris, CFP®

Property values in California are rebounding, approaching levels not seen since the beginning of the economic downturn. While this may be welcome news, homeowners could be facing some difficult choices:

• Some homeowners feel that they can’t afford to downsize their homes due to the higher property taxes they would incur on a replacement home.

• Children and grandchildren can’t afford the property taxes on real property transferred from their parents or grandparents.

• Severely disabled residents may need to sell their homes and find more suitable replacement homes – but they feel stymied by higher property taxes on those future homes. 

Over the past few decades, California voters have, however, enacted various property tax relief measures via several propositions that help to address the above scenarios. Proposition 13 (1978) is the most widely recognized of these rules, and it reduced property taxes by over 50 percent. But several other propositions that are not as well known or understood also allow homeowners to transfer their current tax base to a new home or to their children or grandchildren.  Here is a quick primer on those propositions:

• All in the family:  Proposition 58 (1986) and Proposition 193 (1996) state that real property transfers between parents and children – and from grandparents to grandchildren – may be excluded from reassessment. 

• Severely disabled:  Proposition 110 provides property tax relief to severely and permanently disabled claimants when an existing home is sold and another home is purchased or constructed.

• Moving within same county:  Proposition 60 (1986) allows homeowners age 55 and older a one-time opportunity to avoid property tax reassessment when they purchase a replacement home of equal or lesser value in the same county.

•  Moving to a new county:  Proposition 90 (1988) extends the transfer of tax base values into other counties within the state. Currently, these eight California counties accept Proposition 90 tax base transfers:

          1.  Alameda                    5.  San Mateo

          2.  Los Angeles               6.  Santa Clara

          3.  Orange                      7.  Ventura

          4.  San Diego                  8.  El Dorado

Propositions 60 and 90 require that replacement homes be the owner’s principal residence.  In addition, the new property must be purchased or newly constructed within two years (before or after) the sale of the original property. The claim for the transfer of tax base must also be submitted within three years of the replacement property purchase or construction completion date.

For a complete explanation of these tax propositions, including full eligibility requirements, please visit the Los Angeles County Office of the Assessor website (www.assessor.lacounty.gov). The website also provides convenient links to the required claim forms and instructions.

Mary Harris, CFP®, is the president and owner of Harris Financial Advisors, Inc. in Torrance.  HFA invites investors to learn how wealth management provides the framework for personal financial success at www.harrisfinancial.net.  Your questions and comments are welcomed at hfa@harrisfinancial.net or (310) 791-3226.