Do you live and own property in the state of California and are looking to downsize? If so, you're in luck! If you're over 55, that is.
California’s Prop 60 was designed to save you money while you settle into your new home.
What is California Prop 60?
California Prop 60 is an excellent property tax break that directly and exclusively benefits homeowners 55 or older living in the state of California. Although this law may have similar counterparts in other states, we're only discussing the benefits to those living in the Golden State.
Here's the story behind California Prop 60.
In 1978, California's Prop 13 declared that California property owners could only reassess their homes for market value when they were selling. The tax on the property was 1% of assessed value statewide, plus local taxes. And in between owners, the assessed value of a property could increase by a rate of up to 2% per year.
If the homeowner made a major improvement to his property during this time, it could be added to the home’s assessed value. However, it didn't trigger a reassessment of the entire property’s value.
Due to Prop 13, people who owned the same home for a significant period of time ended up paying far smaller amounts of property taxes each year than someone did if they purchased the same home today (and, sometimes, even if they purchased a smaller one).
If someone sold their home, they saw their taxes immediately skyrocket when they purchased a new one. Because Prop 13 worked on and applied to inherited property, many senior homeowners chose to simply stay in their homes instead—no matter how large—and pass them along to their children and grandchildren.
It was very difficult for new homeowners without access to an inherited home to purchase property in certain established areas of California. This was simply because the people who lived in these areas were fearful about selling their homes due to big tax increases.
As you can imagine, many homeowners felt trapped by Prop 13.
How Prop 60 Works Now
In the late 1980s, California voters approved a pair of propositions—Prop 60 and Prop 90—that give homeowners who are at least 55 years of age a property tax break.
These tax breaks only apply when the homeowners sell their primary residence and buy a replacement home. The catch is that the new home must cost the same or less than the original property.
The state created the proposition to help those wishing to retire or downsize the chance to do so without increasing any of their property taxes.
California Prop 60 Rules and Requirements
Prop 60 has strict eligibility requirements.
- Your primary residence must be in the state of California.
- You must be older than 55 years old.
- If you are under 55, you must be permanently disabled.
- If you are married, only one spouse needs to be over 55.
Assuming you meet the requirements above, you can proceed with your intention to take advantage of the benefits that California Prop 60 has to offer.
A quick caveat: If you are married and use the transfer, neither you nor your spouse is eligible to use it again, even if you divorce. The one exception to this would be if one of you becomes disabled; then you can use the transfer again, due to the disability.
California Prop 60 and Tax Assessment Value
Under Prop 60, homeowners are allowed to take the “locked in” tax assessment value of their original primary residence and apply it to another home in the same county that is of equal or lesser value.
There are a few small exceptions to the “equal or lesser value” rule. Seniors who sell their home before buying the replacement can spend up to 5% more on the new home, but only if they buy it within a year. They can spend up to 10% more if they buy within two years.
Additionally, these homeowners are only eligible for the “equal or lesser value” rule if they purchase their home after they sell their first home. If they buy a home before they sell their current residence, it is illegal to spend even $1 more than the final sale price of their primary residence on the new home.
What is California Prop 90?
California’s Prop 90 is Prop 60’s first cousin. Some people even call them Prop 60/90.
The eligibility requirements and rules are the same, but instead of having to transfer to a home in the same county, you can move to any county that accepts incoming transfers. Currently, 10 counties in California allow incoming transfers.
Here is a list of the participating counties and the median sales price (as of May 2017):
- Alameda County ($833,750)
- El Dorado County ($450,000)
- Los Angeles ($465,810)
- Orange ($760,000)
- Riverside ($375,000)
- San Bernardino ($263,100)
- San Mateo ($1,350,000)
- Santa Clara ($1,130,000)
- Tuolumne ($270,000)
- San Diego ($571,000)
- Ventura ($672,220)
How do you report for Prop 60?
To successfully report for Prop 60, you must go through your local county assessor's office. From there, you can obtain the forms needed to correctly claim your tax break and begin experiencing the benefits.
Benefits of California Prop 60
The main benefit of Prop 60 is the ability to downsize your home without seeing a massive spike in your property taxes. You do not have to stay in a home that you feel is too large, in a bad location, or too difficult to take care of simply because you do not think you will be able to afford the taxes on a new home.
As you move into retirement, Prop 60 gives you the flexibility needed to fully enjoy the second stage of your life. You don’t need to worry about your finances during your retirement because Prop 60 and Prop 90 grant you the freedom to take a big step towards financial peace.
Do other states have similar programs?
While California Prop 60 only exists in, well, California, there's great news if you live elsewhere. California isn't the only state that has a great property tax break for seniors. So, if you do not live in California and are still interested in participating in a great property tax break program, you can!
Currently, the following states also have similar programs:
- New Jersey
- Rhode Island
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Ready to purchase the home of your dreams with your Prop 60 tax break? The team of professionals at Clever are here for you—every step of the way. Call us today at 1-833-2-CLEVER or fill out our online form to get started.