Property Tax Fairness Initiative May Be Coming to the November 2018 Ballot
The California Association of Realtors (C.A.R.) has sponsored signature gathering efforts to get the Property Tax Fairness Initiative, sometimes referred to as the Statewide Tax Portability Initiative on the November 2018 ballot. The initiative would expand upon the existing benefits of Proposition 60 and Proposition 90.
If passed, the Property Tax Fairness Initiative will:
- Let seniors aged 55+ to move to a replacement property in any California county while maintaining their current property tax base.
- Allow for a blended tax rate should a senior buy a replacement home more expensive than the one they sell.
- Enable seniors to use the benefit multiple times.
- Ease the lack of inventory that’s been a source of frustration to so many buyers.
Let’s take a step back for a moment to go over the existing law:
It starts with Proposition 13, which was passed in 1978 and lowered property tax rates from 3% to 1%. When a property is purchased, it is taxed at 1% of the property’s market value. Annual increases in property tax are limited to 2% unless the property is sold, at which point it is reassessed at the new market value.
As an example, a person who purchased their home in the 1990’s for $200,000 pays property tax based on that $200,000 purchase price. Their property taxes can increase by a maximum of 2% per year. Their home may now be worth $750,000 and because Proposition 13 puts a cap on property tax increases, their annual property tax bill is about $3,500 annually. If that same property was purchased today for $750,000, the tax would be approximately $7,500 annually.
Tax portability allows a senior aged 55+ to transfer that lower tax base (portability) to a replacement property through the use of Proposition 60 or Proposition 90.
Proposition 60 allows homeowners aged 55+ a one time benefit to transfer their tax base when they sell their home and purchase another in the same county for the same or lower market value. If specific criteria is met, they can buy a home up to 110% of the value of the home they sold.
Proposition 90 allows homeowners aged 55+ a one time benefit to transfer their tax base to a replacement home of equal or lesser value in a participating county in California. Here again, if specific criteria is met, they can buy a home up to 110% of the value of the home they sold.
While Propositions 60 and 90 offer terrific benefits, they’re limited. The Property Tax Fairness Initiative will remove some of the limitations and allow seniors to move to any California county and maintain their tax base if they buy laterally or get a blended tax rate if they buy up. The increase in available inventory that will occur as seniors take advantage of the new benefit if the initiative is passed, will be a welcome change, especially for buyers trying to break into the housing market.
To read what C.A.R. has to say about the Property Tax Fairness Initiative/Statewide Tax Portability Initiative, click HERE.