Proposition 90: a Benefit for California’s Elderly or an Unsustainable Social Expense

Proposition 90 is a 22-year-old initiative that enables homeowners 55 years or older to transfer the base year value of their principal residence in one county to a newly purchased residence in another county provided that certain requirements are met.

Prop. 90 allows homeowners 55 years or older to move closer to family, medical services or to downsize in an effort to reduce expenses. Without Prop 90’s protection, these homeowners would have been locked-in to their previous residences due to the significant property tax increase incurred in moving.
To qualify for the program, applicants and properties must meet certain requirements per the California Board of Equalization. These requirements have been provided below along with additional information from their site here.

  • The homeowner or a spouse residing with the homeowner must have been at least 55 years of age when the original property was sold.
  • The replacement property must be a principal residence and must be eligible for the homeowners’ exemption or disabled veterans’ exemption.
  • The replacement property must be of equal or lesser “current market value” than the original property. The “equal or lesser” test is applied to the entire replacement property, even if the owner of the original property purchases only a partial interest in the replacement property. Owners of two qualifying original properties may not combine the values of those properties in order to qualify for a Proposition 90 base-year value transfer to a replacement property of greater value than the more valuable of the two original properties.
  • The replacement property must be purchased or built within two years (before or after) of the sale of the original property.
  • 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.
  • Your original property must have been eligible for the homeowners’ or disabled veterans’ exemption either at the time it was sold or within two years of the purchase or construction of the replacement property.
  • The replacement property must be purchased in a county that participates in the Proposition 90 program.

The original property is subject to reappraisal at its current fair market value at the time of sale, unless the buyer(s) of the original property also qualifies the property as a replacement property for a base year value transfer due to disaster relief or a base year value transfer for a severely and permanently disabled person. Therefore, most transfers between parents and children will not qualify.

This is a one-time only benefit. Once this tax relief has been filed and received, neither the primary homeowner nor the spouse who resided with the primary can ever file again – even upon death or divorce. The only exception is if a homeowner becomes disabled after receiving this tax relief for age. Only then may one transfer the base year value a second time.

Currently, Santa Clara is one of eight counties in California that participate in Prop 90; Alameda, El Dorado, San Diego, Los Angeles, San Mateo, Orange and Ventura also participate in Prop 90 transfers.

Proposition 90 is a “local-option” law, meaning each county has the option of participating. If a county has adopted a Proposition 90 ordinance, it accepts transfers of property tax base assessments from other California counties. If the county that the homeowner is moving from does not have a Proposition 90 ordinance, this does not affect the eligibility of the homeowner.

Since the program’s inception in 1988 several previously participating counties including Contra Costa, Inyo, Kern, Riverside, Modoc, Monterey, and Marin no longer participate in the Prop 90 program citing loss of property tax revenues.

Santa Clara County’s 2012 budget calls for a repeal of Prop 90 effective January 1, 2012 as it is facing a $220 million budget shortfall (out of a $4 billion budget). This repeal was recently voted down by a unanimous 5-0 vote at a Board of Supervisors meeting on June 14th 2011. Prop 90 will therefore remain in effect unless challenged again at which time it would be subject to another vote.

As our society continues to age and live longer, property tax can be an important component of one’s financial and retirement plan. More than ever, it is important that we consider not only where to live but precisely what and when to buy and sell our real property. As with all major financial decisions it is highly advisable to contact financial and real estate professionals capable of addressing complex real estate, tax and planning concerns.

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