Carol Carnevale • DRE# 00946687 • 650.465.5958
Nicole Aron • DRE# 00952657 • 650.740.7954
Earlier posts have discussed Proposition 13, The People’s Initiative to Limit Property Taxation, which was passed by California voters in 1978. One of the unintended consequences of this measure was to discourage people from selling their residences as their family circumstances changed. As children left their family homes and started their own new households, parents remained in homes larger than they wished. However, due to the property tax disincentive which occurred many were reluctant to sell their current homes with low assessed values to purchase smaller homes which would be assessed at higher amounts.
In 1986 California voters passed Proposition 60 which permits people over 55 years of age to sell one home and buy another of equal or lesser value within the same county and transfer their original Proposition 13 tax basis with them. The time limit for affecting this tax transfer is two years, and depending on the timing of the transfer, the value of the replacement home can be as much as 110% of the home being sold. This property tax transfer is a one-time benefit.
In 1988 California voters passed Proposition 90 which extends the Proposition 60 property tax transfer benefits to replacement residences in other counties, providing these counties choose to participate. As of February, 2010 the following eight counties allow the transfer of property tax base:
Alameda Los Angeles San Diego Santa Clara
El Dorado Orange San Mateo Ventura
On the surface the application of these Propositions seems straightforward, but in the course of our real estate experience we have been reminded that for all tax questions it is essential that tax advice be obtained from a Certified Public Accountant (CPA) or an attorney familiar with tax laws.
An example which came up recently for us involved a divorcing couple who were in agreement over which spouse would take the property tax base to a new residence. The home that they owned together and were selling was held in a family trust, while the replacement home was purchased in one of the spouse’s individual names, i.e. the manner in which title was held was not consistent for both properties. Unfortunately the specific questions surrounding the transfer of the tax basis did not arise until the closing when the tax assessor forms were accessed for completion. The tax assessor’s office staff was uncertain about the applicability of the law and the divorce attorney was also not clear about the issue. In the end the client sought the advice of a real estate attorney whose opinion after considerable research and based on this client’s situation was that the transfer of the property tax base was possible.
Our advice if you are planning to transfer your property tax base to another home is to always seek tax advice from a qualified professional before entering into any real estate listing or purchase contract. While real estate practitioners are familiar with the basics of these laws, they are not qualified to give tax advice. Here is a link which provides some basic preliminary information.