When prices rose quickly, everybody was exited that they now had “equity”. But unless you were checking out of the high priced Orange County real estate market, you now have to contend with ever higher property taxes when purchasing a new home. However, there are several breaks that give long term property owners a lot of benefits over new home buyers. Some of which you may be able to take advantage of even as an Orange County new home buyer.
On June 6, 1978 proposition 13 was signed into law. It limited property taxes to a maximum of 1% and further capped the amount the tax assessment could go up by only 2% of existing value. The effects of this law were many, but mostly it gave existing owners a huge break over new younger buyers who are now disproportionately paying higher taxes. But the following tax propositions may give new home buyers a chance to reclaim these lower rates.
Proposition 60 gives seniors 55 years and older a chance to move “down” in value with out raising their prop 13 tax basis. Under this law, seniors may buy a lesser priced home within 1 year before selling a home and move the tax basis over to the new property. If you sell the original home before purchasing a new home but within 365 days of the original homes sale, you are allowed a 5% increase in the purchase price and you may still qualify. If you purchase within 2 years of the sale, you may allow for a 10% increase. It should be noted that this law generally applies to intra county transfers. However Proposition 90 allows for inter county transfers with participating counties. As of 6/1/2005, 7 counties accept prop 90 and they are Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura.
But you don’t have to be 55 to benefit from all of the tax breaks available. Your proposition 13 value may be transferred to your child (proposition 58) and you may be able to transfer up to $1 million in other real estate assessed value to them. Or if your child is deceased it may be able to transferred to your grandchild (proposition 193).
In addition to these propositions, I recently sold a unit in a select historic building that qualified for a massive reduction in property taxes by as much as 60%. This was under the Mills act.
If you get creative, I am sure you can find a lot of ways to take advantage of these tax breaks. In my opinion, it is a shame for any property to owner with children to sell to anybody but their heirs. These tax breaks can mean tens of thousands of dollars in savings and increased wealth.