Tax Benefits of Propositions 60 & 90
This brief article will explain the tax benefits of Propositions 60 and 90 and how to use them to maintain your current property tax rate when buying down to a smaller home as you enter retirement. Propositions 60/90 – property tax relief for seniors for those who want to keep the low property tax rate from their long held principal residence and transfer it over to their new smaller (downsized) home. The yearly savings can be substantial and should be used whenever possible.
Here are the basics behind Prop 60/90 as provided by the Los Angeles County Tax Assessors office;
Let’s say you have owned your current residence here in California for the past 30 years and you purchased it for $250,000. Your yearly property tax bill was calculated on a base amount of one percent of the purchase price and it steadily increased at no more than 2% per year, your assessed value that is, not the value of the property. Your property value has probably increased 300% – 400% during the time. Our property tax rates are relatively low here in California due to Prop 13 that was passed back in 1978 with a 2/3 unanimous vote!
Move to the present day and you now own a property worth $1,000,000 and your property tax bill is based on the current assessed value of $452,000, or $5,650 per year. You want to retire and downsize to a more manageable home closer to the kids that will cost you $675,000. Without the benefit of Prop 60 the property tax bill on the new home would be almost 50% higher, or $8,438 per year! With Prop 60 you get to keep your old tax rate at $5,650 per year.
Prop 60 allows you to keep your tax rate when you buy/sell within the same county. Prop 90 allows you to use this benefit when you transfer from one county to another.
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.
1 The replacement property must be your principal residence and must be eligible for the Homeowners’ Exemption or Disabled Veterans’ Exemption.
2 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.
3 The replacement property must be purchased or built within two years (before or after) of the sale of the original property.
4 Your original property must have been eligible for the Homeowners’ or Disabled Veterans’ Exemption.
5 You, or a spouse residing with you, must have been at least 55 years of age when the original property was sold.
Frequently Asked Questions
Q. What is the difference between Proposition 60 and Proposition 90?
A. 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).
Q. If I qualify for Proposition 60/90 benefits, do I still need to file for a Homeowners’ Exemption on the replacement property?
A. Yes. Homeowners’ Exemptions are not granted automatically.
Q. What is the Proposition 60/90 filing deadline?
A. 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.
Q. My replacement home is located outside of the county of my original home. Do I still qualify for relief?
How will I know if the county I am moving to will accept my transfer of eligibility under Prop 90?
Since the counties are subject to change, it is recommended that you contact the county in which you wish to move to verify Proposition 90 eligibility.
Q. Do all replacement homes qualify?
A. If you meet all other eligibility requirements, relief is granted for a single family residence, condominium, unit in a planned development, cooperative housing, community apartment, mobile home subject to local real property tax, and a living unit within a larger structure consisting of both residential and non-residential accommodations.
Q. If I make an improvement to my replacement home within two years of purchase, can I get additional tax relief for the new construction?
A. Yes, as long as the total amount of your purchase and the new construction does not exceed the market value of the original property at the time of the sale.
Q. What does “equal or lesser value” of a replacement property mean?
A. 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.
Q. Can I give my original home to my son or daughter and still get Proposition 60/90 benefits when I purchase a replacement property?
A. No. An original property must be sold and subject to reappraisal at full market value.
Q. If an original property has multiple owners, can Proposition 60/90 tax relief be split?
A. No. The owners must determine between themselves which one will get the benefit. Only one original owner can claim Proposition 60/90 tax relief.
How Do I File for Proposition 60/90 Tax Relief?
Claim forms are available from several sources. Choose the most convenient for you.
For Los Angeles County Residents:
Online: Forms are available from the Assessor’s website: assessor.lacounty.gov
For Ventura County Residents:
800 South Victoria Avenue
Ventura, CA 93009-1270
Claim of Person(s) at Least 55 Years of Age for Transfer of Base Year Value to Replacement Dwelling BOE-60-AH