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Baby Boomers, Property Tax Relief, and Downsizing Strategies

Baby Boomers, Property Tax Relief, and Downsizing Strategies

Why Baby Boomers Should Take Advantage of

Prop. 60/90 and Transfer Their Property Tax Base

Many baby boomers (those people born between 1946 and 1964) are in the middle of their transitions from working to retirement.  During this time period it is difficult for many people to imagine their lives without the homes that they raised and educated their children in.   There are thousands of memories and a multitude of mementos scattered throughout the neighborhoods they have called home for so long. 

However, many of these homes and neighborhoods are too big and cumbersome to care for anymore thus this large generation of Americans are looking to downsize and find real estate and properties that are more manageable, comfortable and convenient.  For example, homes with lots of stairs become difficult to navigate so a single-level home is much more desirable, or even required for some baby boomers to live day-to-day.  Homes with large lots and vast areas of property to maintain are also less desirable as people get older.

California Propositions 60 & 90

California Propositions 60 & 90 have created great opportunities for individuals and couples with a low property tax base to downsize into smaller homes and still maintain the same low annual property tax bill even if the newer/smaller home is the same price as the home being sold.

For example, let’s say a couple purchased their home in 1970 and paid $30,000.  Their annual property tax bill was approximately $500 when Proposition 13 was passed (which provides for a property tax base and limits increases property tax bills for homeowners).  Fast forward to 2014 and that same $30,000 home is now worth $1,500,000.  A home purchased today for $1,500,000 has an annual property tax bill of approximately $15,000.  So, if the 1970 homeowner sold their home today for $1,500,000 and purchased a smaller more comfortable home for $1,500,000 (or less) they are allowed a one-time exemption to keep or transfer their property tax base at $500 for their new home in certain designated counties.

This is a great deal for folks!  You will get to downsize into a newer more comfortable home and even if the price is the same as your current home you get to keep the same low tax base.  In the San Francisco Bay Area homeowners in Santa Clara, San Mateo and Alameda counties are allowed to transfer their tax bases one-time.

Requirements for Exemptions

There are several requirements for the one-time property tax exemption: 1) you or a spouse residing with you must have been 55 years old when the original property was sold; 2) the replacement property must be your principal residence and must be eligible for the homeowners’ exemption or disabled veterans exemption; 3) the replacement property must be of equal or lesser “current market value” than the original property (partial interests do not qualify); 4) the replacement property must be purchased or built within two years (before or after) of the sale of the original property; 5) to receive retroactive relief from the date of transfer, you must file your claim within three years following the purchase date or new construction completion date of the replacement property; 6) your original property must have been eligible for the homeowners’ exemption or disabled veterans’ exemption either at the time it was sold or within two years of the purchase or construction of the replacement property; and 7) most transfers between parents and children will not qualify.

Nine Counties in California Allow One-Time Transfers

There are many nuances and several exceptions to the above general guidelines.  As of September 2013 only 9 counties in the State of California have passed exemptions allowing transfers.  The counties that allow transfers are Alameda, El Dorado, Los Angeles, Orange, Riverside, San Diego, San Mateo, Santa Clara, and Ventura.  You may also purchase a replacement property at 110% of the original property sales price.

Properties that are gifted or devised by will are not eligible because no value is being exchanged.

Prop. 60/90

Family Involvement in Downsizing Strategy is Critical

It is extremely important for people to involve their families, their children, and their friends in the downsizing and relocation process.  Be considerate and allow input from your children and your friends as they may provide important information, important ideas, and positive suggestions that you have not thought about.  It is also an opportunity to strategize with life-long friends to possibly relocate to similar locations, communities, or the same building for that matter.

Strategies for Downsizing and Keeping Your Tax Base

I’ve helped dozens of clients, including my own parents, downsize into a single-level and importantly comfortable homes for their retirement years.  Downsizing can be a difficult and stressful process as it entails purging and getting rid of a lot of accumulated items, furniture, and family stuff you have grown accustomed to.  There are many strategies that can be employed to help keep your tax base where it is at, help reduce the potential capital gains exposure that comes with selling a home you have held for several decades, and many processes to help reduce the concomitant stress that is associated with this challenge.  I can help in each of these strategies, tasks, and processes as I have done it for many clients over the years.

Another great strategy is to purchase an income producing property and have it managed by a professional property manager – the fees of which are tax deductible.

Please do not hesitate to contact me with questions, inquiries or ideas.  I’m looking forward to hearing from you.

 

About Shelly Roberson

Shelly Roberson has 25 years of experience; 600+ closed transactions; UC Berkeley grad; Shelly has worked in the same Palo Alto office for 23 years; She brings a wealth of skill, experience and professionalism; Shelly is incredibly detail oriented and a savvy negotiator.

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