Senior Citizen's Replacement Dwelling Benefit
In most cases, these constitutional tax initiatives allow senior citizens to transfer the trended base value from their current home to a replacement property if certain requirements are met. This may result in substantial tax savings.
For expanded definitions of Propositions 60 and 90, see Revenue and Taxation (R & T) Code Section 69.5. It is available online at leginfo.legislature.ca.gov.
The replacement property must be your principal residence and must be eligible for the Homeowners’ Exemption or Disabled Veterans' Exemption.
The replacement property must be of equal or lesser “current market value” than the original property. The "equal or lesser" test is applied to the entire replacement residence, even if the owner of the original property acquires only a partial interest in the replacement residence. Owners of two qualifying original residences may not combine the values of those properties in order to qualify for a Proposition 60 base-year transfer to a replacement residence of greater value than the more valuable of the two original residences.
The replacement property must be purchased or built within two years (before or after) of the sale of the original property.
Your original property must have been eligible for the Homeowners’ or Disabled Veterans’ Exemption.
You, or a spouse residing with you, must have been at least 55 years of age when the original property was sold.
If you or your spouse who resides with you is age 55 or older, you may buy or construct a new home of equal or lesser value than your existing home and transfer the trended base value to your new property.
This is a one-time only benefit. You must buy or complete construction of your replacement home within two years of the sale of the original property. Both the original home and the new home must be your principal place of residence. A claim must be filed within three years of purchasing or completing new construction of the replacement property. If a claim is filed after the three-year period, relief will be granted beginning with the calendar year in which the claim was filed.
Once you have filed and received this tax relief, neither you nor your spouse who resides with you can ever file again.
Frequently Asked Questions
What is the difference between Prop 60 and Prop 90?
Proposition 60 relates to transfers within the same county (intra-county). Proposition 90 relates to transfers of base value from one county to another county in California (inter-county).
You may qualify for relief. Effective June 5, 2015 the following counties in California have an ordinance enabling Proposition 90:
Since the counties indicated above are subject to change, we recommend contacting the county to which you wish to move to verify Proposition 90 eligibility.
Do all replacement homes qualify?
If you meet all other eligibility requirements, relief is granted for a single family residence, condominium, unit in planned development, cooperative housing, community apartment, mobile home subject to local real property tax, and living unit within a larger structure consisting of both residential and non-residential accommodations.
What does “equal or lesser value” mean for the replacement property?
The meaning of “equal or lesser value” depends on when you purchase the replacement property. In general, “equal or lesser” value means:
100% or less of the market value of the original property if a replacement property was purchased or newly constructed before the sale of the original property, or
105% or less of the market value of the original property if a replacement property was purchased or newly constructed within the first year after the sale of the original property, or
110% or less of the market value of the original property if a replacement property was purchased or newly constructed within the second year after the sale of the original property.
When making the “equal or lesser value” test, it is important to understand that the market value of a property is not necessarily the same as the sale or purchase price. The Assessor will determine the market value of each property. In some new developments, the indicated sale price does not include upgrades paid for outside of escrow. The Assessor must consider the value of these upgrades when determining the market value of the property.
If the market value of your replacement dwelling exceeds the “equal or lesser value” test, no relief is available. It is “all or nothing” with no partial benefits granted.
QUESTIONS AND ANSWERS
Q:Brett L. asks, "I am 64. I am buying a more expensive house in San Francisco and would like to know if I can transfer my property tax from the house I have in San Francisco."
Answer: Probably not, although it is theoretically possible if Brad can afford to hold on to both homes for up to two years and property values go up.
Under Proposition 60, California homeowners 55 and older get a one-time chance to sell their primary residence and transfer its property-tax assessment to a new one, but the market value of the new home generally must be equal to or less than the market value of the old home.
Prop. 60 was designed to help longtime California homeowners who want to downsize but don't want to give up the low property-tax assessment they enjoy in their existing home.
Under Proposition 13, homes are reassessed for property-tax purposes when there is a change in ownership or new construction. In between ownership changes, the assessed value can go up by an inflation rate not to exceed 2 percent a year. (Homeowners can get temporary reductions when property values go down.)
Despite the recent decline in property values, many longtime homeowners would face a big property-tax increase even if they bought a smaller home.
Prop. 60 lets homeowners 55 or older transfer their base-year value from an existing primary residence to a new primary residence, but there are restrictions.
The new home must be in the same county as the old one or in one of eight counties that accept transfers of base-year value from other counties.
Also, the new home must be purchased or built within two years - before or after - the sale of the original property.
If the new house is purchased before the old house is sold, the market value of the new house on its purchase date cannot exceed 100 percent of the old home's market value on the date it is sold.
If Brett could afford to hold on to his existing home and it appreciates to more than the value of the new house and he sold the first house within two years, he could qualify for a Prop. 60 transfer.
Suppose his existing home is worth $500,000. On Aug. 1, he buys a new larger home for $600,000.
He holds on to the first home, San Francisco property values go through the roof, and two years later it is worth $610,000. He could sell the first home before Aug. 1, 2014, and retroactively transfer his old property-tax assessment to his new home, even if the new home's value has climbed above $610,000.
What if a homeowner sells the existing house before purchasing a new one?
To give the homeowner a cushion for inflation, the value of the replacement house must be 105 percent or less than the value of the original house if the new home is purchased within one year or 110 percent of the first home's value if the replacement home is purchased in the second year after the sale of the original property.
IT’S IMPORTANT TO RECOGNIZE THAT THERE ARE A LOT OF PITFALLS WITH THIS TAX BREAK.
Just because you sold one place for $700,000 and bought another for $695,000 doesn't mean you will qualify. Assessors may challenge whether the sales price equals the market value. They don't always.
If you exceed the cutoff by even a dollar, you lose the entire Prop. 60 transfer.
Marsh notes that the market value of a home excludes personal property such as a washer, dryer or hot tub. If such items are included in a purchase or sale, the homeowner might (or might not) want to make a note of their value in the contract.
The eight counties that will transfer property tax assessments from other counties are Alameda, El Dorado, Los Angeles, Orange, San Diego, San Mateo, Santa Clara and Ventura.
Also, if you are moving from Los Angeles to San Francisco, you can't transfer your old value but if you are moving from San Francisco to Los Angeles, you can, assuming you meet all the other requirements.