Downsizing Without Super-Sizing Your Property Taxes

By: Phoebe Chongchua: RealtyTimes
Here's a topic that may be encouragement for seniors who have desired to move but are holding out because of increased taxes. There are many seniors who decide that the home they're living in is too big for them. Downsizing is just the answer but some worry that they still may face a property tax increase should they move into or build a new home.

In California, tax relief for seniors 55 and older helps ease the cost of moving and finding a replacement home by transferring the taxable value on the senior's original home to the replacement home.

Here's how it works. Under Proposition 60/90, seniors may carry approximately the same annual property tax basis as they did with their old home to a new home that is purchased of equal or lesser value.

This basically means that seniors get a break from a property tax reassessment that would ordinarily occur when a home is bought and appraised at full market value at the time of its purchase.

The program is based on a comparison using the full market value of the current property and the full market value of the replacement home as of its date of purchase. It is not based on the sales price of the current home which can be different than the market value. The assessor determines the market value of both properties.

Originally California Proposition 60 limited where a senior could move and still get the same property tax basis. But that later changed to include several cities in California. However, currently only a few counties honor the tax break so it's wise to check which do before you buy a replacement home there.

This benefit for seniors is a one-time break; you cannot move multiple times and qualify. A few other restrictions also apply, such as: it has to be your primary residence that you're selling and the replacement property must be the location of your new primary residence; if you're married, only one person needs to be 55 years or older at the time of the sale; you must sell your current home and buy your replacement home within a two-year period, and the application must be filed within three years of the date a replacement home is purchased or new construction of a replacement home is completed.

For some seniors this is the exact benefit they need to encourage them to move. However, it's important to understand a few other specifics of Proposition 60/90 Reappraisal Exclusion for Seniors.

For instance, no partial exclusions are allowed. So if you decide to buy a home that is of a higher value than your current home, you will not qualify for the program.

Here is how the property value limits work according to the San Diego County Tax Assessor Office. If you buy a replacement property before you sell your current home then the limit is 100 percent of the market value of an original property. The percentage jumps to 105 percent of the market value of an original property if a replacement home is purchased within one-year after the sale of the original property.

The percentage increases to 110 percent of the market value of an original property if a replacement home is purchased within the second year after the sale of the original property.

One other significant benefit with this program is that if an addition is made to a replacement home it may qualify for a re-assessment exclusion. According to the law, new construction performed on the replacement home after the base year value has been transferred, is excluded from assessment if the following criteria are met: the new construction must be completed within two years of the date of sale of the original property; the owner within 30 days and in writing notifies the assessor of the completed new construction; and the market value of the new construction plus the market value of the replacement home is not greater than the market value of the original property.

If you're considering using Proposition 60/90, be sure to check with your realtor and the local county tax assessor for more specific details and restrictions about the program.