Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: How could the ballot proposition California is voting on in November affect property taxes on luxury homes?
A: The Property Tax Fairness Initiative, sponsored by the California Association of Realtors, will have “no direct impact on the luxury market” as a whole, said Daniel Leer, a lawyer with an eponymous law firm in Pleasant Hill, California, about 28 miles east of San Francisco. But it may make a big difference in the mobility of Baby Boomers in the state.
The proposition’s intent is to “expand the options for those 55 and older,” he said. It would amend the state’s Proposition 13, which was passed in 1978 and capped property tax increases at 1% throughout California, and generally said, properties could only be reassessed between sales.
“People can essentially lock in their tax rate,” according to Adam Touni, a real estate lawyer and broker with Pacific Union International.
That means that people living in homes they bought decades ago are still paying property taxes on the original value of the home, plus any additions or renovations they may have made. For instance, Mr. Touni’s own parents have a three-bedroom home in Mountain View, California, that they bought for $160,000 in 1982. Values in Mountain View, where Google is headquartered, have skyrocketed, making their home now worth about $2.5 million. But the family still pays property tax on the original price of the home, plus the value of a “modest” addition made in the late 1980s.
That makes moving a sticky issue for those facing retirement—and a fixed income. More recent propositions, 60 and 90, allow California residents over the age of 55 to transfer a low tax rate from one home to another—but only once, according to Mr. Leer. Additionally, they can only move within their own county, or a handful of others that offer reciprocity, and the home has to be of equal or lesser value.
From Penta: Contemporary Works Create Spring Auction Buzz
The Property Tax Fairness Initiative, which will be voted on in November, aims to change that by allowing the 55-plus set to transfer their property tax basis to new homes anywhere, at any value, as many times as they want, Mr. Leer said. It would also include disabled residents, victims of natural disasters, and homeowners living on contaminated property.
If a family moved to a more expensive home, the property taxes there would be a combination of their old tax basis and a portion of the new value, Mr. Leer said. If the home were less expensive, the basis would be adjusted for that lower value.
The initiative would affect individual homebuyers, but will not affect property taxes across the market. Usually, his older clients are looking to downsize and capture the equity in their existing homes, Mr. Leer said. If they had more options when selling, that “might expand the market for luxury homes because people will be leaving them, but that’s highly speculative,” he added.
Follow Mansion Global:Facebook | Twitter | Instagram | LinkedIn | Messenger
Write to us: firstname.lastname@example.org