News & Insights

Loopholes for Substantial and Perpetual Property Tax

by Jim Freeman, CFP® on 7/9/2018

This blog was written in conjunction with guest author Matt Brand.

Homeownership is quickly becoming a luxury that fewer can afford in California these days. But it doesn’t have to be – if you know the tax code.  In this column we highlight some lesser known property tax loopholes that can help ease the financial burden for those who qualify.

Tax Loophole That May Apply to You

Most people know about Proposition 13, which applies to all California homeowners. It caps property tax at 1% of home value as determined by purchase price and then it limits annual increases to no more than 2% annually thereafter.

There are a handful of loopholes that apply to people in specific circumstances and these are not well known.

Proposition 60 lets homeowners who are 55 or older sell their home, buy a new one, and transfer their “old” home’s tax assessment basis to the new home (“property tax portability”). Such fortuitous transfers are permitted only once in a lifetime. And this law only applies to moves into a home of equal or lesser value and to moves within the 11 participating counties (including San Diego). But these rules may soon become more flexible.

The Proposition 13 Tax Transfer Initiative , which is on the ballot for November, would allow homebuyers of a certain age to transfer their tax assessment with a possible adjustment from a prior home to a new one.

Proposition 110 extends the same benefits of Prop 60 (and the proposed add-ons of the 2018 Prop 13 Initiative) to disabled Californians of any age.

Proposition 58 allows for property tax portability on primary residence transfers between parents and children. Prop 193 does the same between grandparents and grandchildren.

The Mills Act allows owners of historic structures to receive reduced property taxes in exchange for preserving the property. The process of getting a home historically designated and approved for the Mills Act is not easy, but the pay-off can be a 40-70% property tax reduction. It’s much easier to simply purchase a home which already has the Mills Act in place. This is the route co-columnist Jim has recently taken.

A Word on Timing

For me, I am 48 years old, and as mentioned in our previous article. I feel forced to stay in my home due to the higher property tax and mortgage expense that would result from a move. But I will watch the Proposition 13 Tax Transfer Initiative closely and potentially take advantage of it (or Prop 60 in its current form) when I turn 55. Simultaneously, I’ll keep my eye on the Mills Act homes that come to market.

These are obscure loopholes and only a slice of the North County population fits into them. But in this housing environment we need any advantage we can find. It can’t hurt having them in your toolkit for future planning dialogues with your tax advisor, real estate broker and  financial advisor.

posted in BlogInvestmentsPersonal Finance

Blog Topics

Featured Literature

Search

Subscribe

Receive updates by email.

Disclaimer

Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.