If you’re a retiree and you want to sell your home and buy another, how do you avoid the potential increase in property taxes? There are two amendments, Prop 60 and Prop 90, that can help you.
First, let’s talk about how this increase impacts you. In 1978, the State of California passed Prop 13, which capped the rate that your property taxes could increase at 2% per year. For example, if you bought a home in San Mateo in 1980 for $100,000, you were paying 1% of the purchase price (or $1,000 per year) in property taxes. With the rate of yearly increase capped at 2%, that house would likely have a current assessed value of roughly $200,000, even though the market value would be much higher. You’d also now pay a property tax bill of roughly $2,000 per year.
The problem is, if you sell that home for, say, $1 million and then buy a replacement property for a similar price, your property tax bill will skyrocket to around $10,000 per year.
In 1986, though, California passed Prop 60, which allows homeowners to carry over their base-year property taxes if they’re buying a home of equal or lesser value to the home they sell.
For example, if you sell your home for $1 million and you buy a replacement home for $950,000, you can take your current property tax assessment with you. The only rules are that you must be 55 years of age or older and, as mentioned above, the property has to be of equal or lesser value.
If you sell before you buy, you get a 5% increase in your allowance in your purchase price for the first year and 10% for the second year. You can only take advantage of Prop 60 once in your lifetime, though, and the properties you buy and sell must both be your primary residences.
As helpful as Prop 60 was, there was still a catch to it—you could only take advantage of it if you bought and sold in the same county. That’s why, in 1988, California passed Prop 90, which allows you to transfer your property tax base to another county. However, other counties have to opt in to allow this transfer, and at the moment, only 11 counties allow Prop 90 transfers:
- San Diego
- El Dorado
- San Mateo
- Los Angeles
- San Bernardino
- Santa Clara
- Orange County
If you have any questions about this topic, don’t hesitate to give me a call. If you have any other questions about our San Mateo market or you’re thinking of buying or selling a home soon, feel free to reach out to me as well or visit my website. I’d be happy to speak with you.