Home Owners Could Capture Major Property

Tax Savings with a Little Research and Planning

By David R. Walker

Southland Regional Association of Realtors

Homes sell so fast today that some buyers and sellers move so quickly they overlook the long-term impact of an important part of the homeownership puzzle -- the piece that lands in the mail box every Nov. 1 called the property tax bill.

Not all buyers and sellers qualify, but everyone would be wise to do a little research and planning if they hope to capture the tens of thousands of dollars in property taxes benefits offered by six state propositions.

With the median resale price of homes hovering around $325,000, the annual property tax bill alone could be around $4,000. (Yes, passage in 1978 of Proposition 13 limited the tax levy to 1 percent of the property’s assessed value, but the average tax rate is closer to 1.25 percent when bonded indebtedness is included.)

That same house probably was purchased years ago for half that amount, meaning the current property tax bill could be less than $2,500. Wouldn’t it be nice to move into a new home, yet keep the $1,500 difference?

Over the years, California voters have passed six measures, Propositions 60, 90, 58, 193, 110 and Proposition 8, with each offering different types of tax relief. A summary of each measure follows.

For details, use the Internet to go to http://assessor.co.la.ca.us, the official website of Los Angeles County Assessor Rick Auerbach. The website contains printable brochures detailing each measure. Send an email requesting a copy to assessor@co.la.ca.us or call 888-807-2111.

• Propositions 60 & 90 were intended to encourage home owners over the age of 55 to “move down” to a smaller property, thus opening larger homes to growing families. Both measures provide tax relief by preventing reassessment when a senior citizen sells an existing residence and purchases or constructs a replacement residence.

In addition to the age restriction, the value of the replacement residence must be equal to or less than the original home. If that standard is met, the property tax will stay approximately same.

Proposition 60 originally required that the replacement residence, which also must be the owner’s principal residence, must be within the same county. Later, proposition 90 gave local governments the option to modify the rule so that, for example, Los Angeles County accepts the old tax rate even if the original home was in some other California county.

Moving out of Los Angeles County needs to be considered carefully: Only Alameda, Kern, Monterey, Modoc, Orange, Santa Clara, San Diego, San Mateo and Ventura counties enacted similar measures regarding the replacement residence and some of those measures had a sunset provision.

Buyers who moved into a replacement residence recently have three years from the purchase or completion of new construction to file a claim. The rule can be invoked only once and is available to one of two co-owners, only one of whom must be over age 55.

• Propositions 58 and 193 provide tax relief by preventing reassessment when real property is transferred from parents to children (Prop 58) and from grandparents to grandchildren (Prop 193.) Both measures make it easier to keep the property in the family -- an important option in a market with rising prices and a short supply of homes for sale.

While there are exceptions, ordinarily the claim must be filed within three years of the date of transfer or date of death, but before the property is sold to a third party. The seller’s or decedent’s principal residence is totally excluded from reassessment. In addition, $1 million of other real property may also be excluded.

• Proposition 110 provides tax relieve to severely and permanently disabled people by allowing the transfer of the base-year value of their existing home to a newly purchased or constructed replacement home.

Construction – even to the extent of an entirely new addition -- installations or modifications completed to make the home more accessible will not trigger a reassessment, even if the property tax did not transfer from the original residence.

The replacement dwelling must have a market value equal or less than the original home and must be purchased with two years – before or after – the sale of the original property. The tax code provides a specific definition of “a severely and permanently disabled person. The applicant must, among other requirements, submit a physician’s certificate of disability with the claim.

• Proposition 8 could yield a surprise for current homeowners who invoked its benefits during the 1990s. The measure, which was enacted by California voters in 1978, instructs county assessors to lower the assessed value of property if the property suffers a “decline in value.” This could happen due to a drop in the local real estate market or problems caused by obsolescence or deferred maintenance.

Winning that appeal today seems unlikely, but owners who had their property tax reduced during the down market of the early 1990s could well see a higher tax bill come Nov. 1.

Different benefits and options exist for veterans, but the same advice is good for all current homeowners and prospective buyers. Talk with a Realtor, check with an accountant, study the websites of the local tax assessor and tax collector, but do some homework or risk missing out on major tax benefits.

Buyers and sellers may get lazy, but the tax man will be ready and waiting come Nov. 1.

This column is a service of the 11,800-member Southland Regional Association of Realtors. Send questions to David R. Walker via e-mail to davidr7944@aol.com

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