Q:Brad N. asks, “I am 64. I am buying a more expensive house in San Francisco and would like to know if I can transfer my property tax from the house I have in San Francisco.”
A: Probably not, although it is theoretically possible if Brad can afford to hold on to both homes for up to two years and property values go up.
Under Proposition 60, California homeowners 55 and older get a one-time chance to sell their primary residence and transfer its property-tax assessment to a new one, but the market value of the new home generally must be equal to or less than the market value of the old home.
Prop. 60 was designed to help longtime California homeowners who want to downsize but don’t want to give up the low property-tax assessment they enjoy in their existing home.
Under Proposition 13, homes are reassessed for property-tax purposes when there is a change in ownership or new construction. In between ownership changes, the assessed value can go up by an inflation rate not to exceed 2 percent a year. (Homeowners can get temporary reductions when property values go down.)
Despite the recent decline in property values, many longtime homeowners would face a big property-tax increase even if they bought a smaller home.
Prop. 60 lets homeowners 55 or older transfer their base-year value from an existing primary residence to a new primary residence, but there are restrictions.
The new home must be in the same county as the old one or in one of eight counties that accept transfers of base-year value from other counties.
Also, the new home must be purchased or built within two years – before or after – the sale of the original property.
If the new house is purchased before the old house is sold, the market value of the new house on its purchase date cannot exceed 100 percent of the old home’s market value on the date it is sold.
If Brad could afford to hold on to his existing home and it appreciates to more than the value of the new house and he sold the first house within two years, he could qualify for a Prop. 60 transfer.
Suppose his existing home is worth $500,000. On Aug. 1, he buys a new larger home for $600,000.
He holds on to the first home, San Francisco property values go through the roof, and two years later it is worth $610,000. He could sell the first home before Aug. 1, 2014, and retroactively transfer his old property-tax assessment to his new home, even if the new home’s value has climbed above $610,000.
What if a homeowner sells the existing house before purchasing a new one?
To give the homeowner a cushion for inflation, the value of the replacement house must be 105 percent or less than the value of the original house if the new home is purchased within one year or 110 percent of the first home’s value if the replacement home is purchased in the second year after the sale of the original property.
Bradley Marsh, an attorney with Winston & Strawn, warns “there are a lot of pitfalls” with this tax break.
“Just because you sold one place for $700,000 and bought another for $695,000 doesn’t mean you will” qualify, Marsh says. Assessors may challenge whether the sales price equals the market value. They don’t always.
If you exceed the cutoff by even a dollar, you lose the entire Prop. 60 transfer, Marsh says.
Marsh notes that the market value of a home excludes personal property such as a washer, dryer or hot tub. If such items are included in a purchase or sale, the homeowner might (or might not) want to make a note of their value in the contract.
As of Jan. 1, the eight counties that will transfer property tax assessments from other counties are Alameda, El Dorado, Los Angeles, Orange, San Diego, San Mateo, Santa Clara and Ventura.
“If you are moving from Los Angeles to San Francisco, you can’t transfer” your old value but if you are moving from San Francisco to Los Angeles, you can, assuming you meet all the other requirements, says Francis Nguyen, deputy director at the San Francisco assessor-recorder office.
For more information, see sfg.ly/LAKiC4.
Q:John F. writes, “In your May 29 column, you identify three options for married couples to hold title for their house: community property, joint tenants with right of survivorship or community property with right of survivorship. What is the difference between community property and community property with right of survivorship?”
A: Dennis Sandoval, director of education with the American Academy of Estate Planning Attorneys, responds: “With community property, each spouse can ‘will’ their half as he/she wishes. With community property with survivorship, the spouse’s half automatically goes to the other spouse.”
Most couples want all assets to go to the surviving spouse, so for them community property with right of survivorship is best. If a couple want some or all of the deceased spouse’s assets to go to children from a previous marriage, community property is usually better, he adds.