Understanding Proposition 60/90: A Move Toward Financial Stability

One of the most important aspects to consider for people who begin moving into their golden years is to know that your finances are as stable and as predictable as possible. Your home is a prominent part of establishing this security as you gear up for retirement, travel, and just whatever the heck you want. Proposition 60 and 90 helps to provide choice and stability when it comes to where you want to live.

Proposition 60

First, Let's breakdown the property tax savings program called Proposition 60. Prop 60 was passed in 1986 to allow seniors who were 55 years and older to keep their lower prop 13 property market value even when they buy a new home. For reference, under California's Prop 13 law, the value that is used to calculate property tax is limited to 2% growth per year. However, when ownership changes, Prop 13 requires that the property is reassessed at the current market value. The new owners would pay taxes starting at this new higher level. So with prop 13, your existing home would have benefited from a limited 2% tax growth each year, but should you choose to move, your replacement home would be evaluated at the new market value, which would likely be higher.

This situation is why Prop 60 was enacted. Prop 60 protects seniors from having to pay higher taxes. It essentially allows them to carry over their existing Prop 13 value to a new home. Seniors can continue to pay taxes at their current Prop 13 values as if they had never moved. This savings is a tremendous financial benefit for those people interested in moving into a similar or lower-cost home.

Proposition 90

Proposition 60 required initially that the current home and new replacement home be located in the same county. However, Proposition 90 was passed to enable other counties to modify this through local ordinances. Los Angeles was among the first counties to pass a law allowing for intercounty transfers. So if your original home is in Los Angeles county and you want to purchase a replacement home in another California county, contact that county to inquire about Proposition 90 eligibility. The following counties currently have passed ordinances enabling intercounty base year value transfers:

Prop 90 Counties 2019

1. Alameda

2. Los Angeles

3. Orange

4. Riverside

5. San Bernardino

6. San Diego

7. San Mateo

8. Santa Clara

9. Tuolumne

10. Venture

These counties are subject to change; I recommend contacting the county assessor's office in the areas you are interested in to verify eligibility.

Eligibility Requirements for Prop 60/90

Who is eligible?

An individual must be at least 55 years of age when the original property is sold. For married couples, only one person needs to meet the 55 years of age requirement to qualify. This benefit is meant to be used only once. This stipulation means that once you have received this tax benefit, neither you nor your spouse (if married) can ever re-apply again, even if you divorce. The only caveat here is if you become disabled you may transfer the base year value of your residence a second time.

Original Property Eligibility

The original property must be eligible for either the Disabled Veterans Exemption or the Homeowners Exemption at the time of sale or within two years of the purchase of a replacement property. The original property is also subject to an appraisal at the time of purchase to determine its current fair market value.

Replacement Property Eligibility

The replacement property must also be eligible for either the Disabled Veterans Exemption or the Homeowners Exemption at the time of purchase. This home must be your principal residence, and there is a time limit as to when the new home must be purchased:

1. If you purchase your new home before selling your current home, the price of the replacement home must be at the same or lower market value.

2. If you sell before you purchase and buy a new home within a year of that sale, your new home must not be at a market value that is more than 105% of your existing home. For example, if your home is at 1,000,000 and you buy a replacement within one year, it can not be more than 1,050,000.

3. If a year has passed and you haven't found a replacement, you can still benefit if you buy a replacement in year two. In this case, the new home must not be at a market value of more than 110% of your existing home. For example, if you sell your existing home at 1,000,000 and buy a replacement in year two your new home must not be market valued at more than 110% of your current home.

The replacement property must be purchased within two years. It is essential to understand that when determining if a property is at an equal or lesser value to the original property, the market value of a property is not always the same as the purchase price. An assessor will ultimately determine the market value of each property.

Types of Dwellings Eligible

The relief provided under Prop 60/90 includes but is not limited to the following types of dwellings:

1. Single-family residences

2. Condominiums

3. Cooperative housing

4. Community apartments

5. Mobile homes

Claims

While the replacement property must be purchased within two years, the actual request for this benefit must be claimed within three years of the purchase or new construction completion date of the replacement property to receive retroactive relief. Should a claim be filed after three years, the benefit will occur, beginning with the calendar year that the claim was made.

Propositions 60 and 90 were passed by voters to help provide property tax relief to those people 55 and older to prevent reassessment of property value when selling a home. These laws were enacted in part to protect people 55 and older as they move into retirement planning, fixed incomes, and the joy of retirement. This initiative helps people in this phase to have control over finances and provides support to those looking to move to a more desirable location or a smaller residence. For help navigating through this type of home buying experience, I am available to answer your questions.