Propositions 60 and 90 are amendments to Article XIIIA of the Constitution that allows a California resident who is over the age of 55 to sell his or her place of residence and transfer base year value to another property of equal or lesser value. The property may also be newly constructed, but it needs to have been built within the past 2 years.
Proposition 60 allows the transfer of property within the same county, and Proposition 90 relates to transfers from one county to another within California. Otherwise, they are effectively the same law.
In laymen’s terms, California residents may purchase a new home without paying property taxes as long as the new property is of equal or lesser value. It’s a way an older resident can save some money if they are thinking of retirement or making other financial plans. In counties where property values are high, this can save the recipient a lot of money.
California residents who are over the age of 55 may be eligible to transfer properties according to the proposition 60 & 90 amendments if they also meet the following requirements:
- The residence they wish to transfer must be their primary residence, not a vacation home or investment property.
- The replacement property must be of equal or lesser “current market value” than the original property
- The replacement property must be purchased or constructed within the past two years.
- The recipient or the spouse of the recipient must have been at least 55 when the property was sold.
Properties may be in different counties in California; however, the county must have a local ordinance enabling the intercounty value transfer. Not all counties have this ordinance, so it’s wise to check with your local government authority before applying for the exemption. The following counties have an ordinance that permits the value transfer:
- Los Angeles
- San Bernardino
- San Diego
- San Mateo
- Santa Clara
As long as residents meet the other requirements, relief will be granted. The prop 60 & 90 exemption may apply to single-family homes, condominiums, units in a planned development, a co-op, or a manufactured home that is subject to property tax. The only qualification is that it must be the owner’s primary residence.
It’s essential to understand the state’s definition of “equal or lesser value” concerning a replacement property if you want to consider using this value transfer. The state factors market appreciation into this definition. Therefore, equal of lesser value is defined as:
- 100% or less of the market value of the original property if the replacement property was purchased or constructed before the sale of the original property
- 105% or less of the market value of the original property if the replacement property was purchased or constructed within one year of the sale of the original property
- 110% or less of the market value of the original property if the replacement property was purchased or constructed within one year of the sale of the original property
California residents who are eligible for a prop 60/90 exemption have up to three years from the sale of the original property to claim this value transference. If the time has passed and property values have gone up, the state will allow a margin to accommodate appreciation.
- Residents may not combine values to qualify for Proposition 60 if each purchases a partial interest in the property. For instance, if two associates both own a home that is worth $200,000, they could not jointly purchase a duplex worth $350,000 and claim the original tax base using the argument that their 50% of the transferred property is worth less than their original home.
- You and your spouse can only use this exemption once, so use it wisely. You can’t keep moving every few years of retirement and expect to keep your original tax rate.
- If you make improvements to your replacement property, you may still seek tax relief unless those improvements increase the property value above and beyond the value of the original property. So, if you’re original home was worth $250,000, and you moved into a property worth $200,000, if you end up doing over $50,000 worth of renovations, you could no longer use the exemption.
Prop 60 and 90 were created to give older residents some relief from the burden of paying higher taxes if they decide to move. It was also meant to encourage seniors to consider downsizing their homes if they can no longer manage on their own. You may be hesitant to move into a smaller home if it means paying a higher tax rate.
If you are just moving down the block, it may not be a concern. But say you’re moving from a home in Ventura where the tax rate is 7.25% to a home in Los Angeles County where the tax rate is 9.5%. Even if the property is smaller, you’re still likely to end up paying an annual tax rate that may be tough for residents looking to retire.
Proposition 60/90 allows residents to keep their same tax rate anywhere they move, to retain some consistency as they transition from one stage of life to another. If the situation is reversed and you’d pay less in the new residence, you do not require using the exemption. But it’s available for those who plan a move and want to maintain some consistency in their finances.