The secrets of tax redos

John M. Lee

Everyone wants to save a buck, right?

This month I want to write about how some people might be able to save some money on

property taxes. These are laws that have been passed but most people do not know about

them because they are not well publicized and only apply in certain situations. But, if

you fall into one of these categories, you can save yourself a lot of money!

We have a problem where the elderly who have owned their properties for a long time

feel like they cannot move without paying an inordinate amount of property taxes. And

that is why on Nov. 4, 1986, the voters of California passed Proposition 60, which allows

qualified owners who are at least 55 years of age to transfer the property tax

basis of their principal residence to a replacement property located

in the same county.

The impetus for the passage of this proposition was that as people age and their children

move out of the house, they do not need such a large home any more. Many people were

stuck because, if they were to move, their property taxes would be much higher because

property tax is a percentage of the purchase price. Because of Prop. 13, it can only go up

a maximum of 2 percent per year.

So, what Prop. 60 does is it allows people who are older than 55 years of age to purchase

another principal residence in the same county at a price lower or equal to the one they

sold, and to transfer their old property tax rate to their new home.

If the seller is married, then only one spouse needs to be 55 or older. You can only take

advantage of this once in your lifetime.

In order to take advantage of this, there are forms at the county assessor’s office that

need to be completed so they will know how much to assess your new property.

Proposition 90 is a very similar bill but allows the transfer to be in other California

counties, as long as the county allows it. Their board of supervisors, or equivalent, have

the discretion to authorize such transfers. They also have the right to discontinue

acceptance of the transfers, so please check with the county that you are interested in

purchasing in before committing.

Another hidden secret is the transfer of properties between parents and children.

Proposition 58, approved by the voters of California, excludes reassessment

in transfers of real property between parents and children. The transfer of principal

residences has no value limit. For example, if the property is worth $2 million and the

property is assessed at $500,000, if the parents were to sell the property to their

children at $2 million, after closing the property would still be assessed at $500,000,

resulting in a big windfall for the next generation.

If other properties, which are not principal residences, are transferred, the first $1

million of transfer is excluded from reassessment. In certain instances, Proposition 193

allows the transfer between grandparents and grandchildren to be excluded

from reassessment, provided that all of the parents of the grandchildren are deceased as

of the date of transfer.

By utilizing some of these methods of real estate transfer, families can keep their

properties’ tax basis low for generations to come and help build up wealth

within the family!

John M. Lee graduated from UCLA with an MBA in real estate and finance. For questions

regarding real estate, call (415) 447-6231 or send an e-mail to johnlee@isellsf.com.