Downsizing in California? Consider Prop 60 90 when planning your move

Update: On November 3, 2020, California voters approved Proposition 19 which now supersedes Propositions 60/90.
Reach out to a Summitry advisor if you have questions about how these changes impact your financial plans.

Read our previous post on Prop 19 here.

August 1, 2020

Many Californian Boomers are close to their retirement age or have already retired. Many are leaving the great state of California in search of a slower pace of life, a more tax-friendly state, or to be closer to their children.

For those wishing to remain in California, but perhaps considering a move to a smaller home, Proposition 60 & 90 are important propositions to understand.

What are California Proposition 60 and 90?

Let’s start with what the propositions say.

The Board of Equalization states, “Propositions 60/90 amended section 2 of Article XIIIA of the California Constitution to allow a person who is over age 55 to sell his or her principal place of residence and transfer its base year value to a replacement dwelling of equal or lesser value that is purchased or newly constructed within two years of the sale. These propositions are implemented by Revenue and Taxation Code section 69.5.”

Prop 90 was a further extension of Prop 60 in 1988 that allowed homeowners who are 55 or older to carry over their “assessed value” of their present home to a replacement home in an approved county within California, specifically Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura.

For Bay Area homeowners, the ability to “retain” your current property tax basis can have a significant financial benefit, given how real estate prices have skyrocketed over the past 10 to 20 years, in large part due to the growth of “Silicon Valley.”

For example, as of this writing, for a home with a sale price of $2 Million in Santa Clara County, it will cost the new owners close to $15,000 per year (or approximately 0.75% of the sale price). For many soon-to-be retiring or relocating California homeowners, their “assessed value” basis from when they first purchased the home 10, 20 to 30 years ago may be in the thousands of dollars –  versus tens of thousands of dollars for the same home’s newly assessed property value. A homeowner in this situation could “carry over” this old basis to their newly acquired primary residence.

Caution: Read the fine Proposition print.

This is not a one size fit all proposition. Certain stipulations apply and must be adhered to when the transactions take place.

• The newly acquired property has to be a primary residence for the owners.
• The newly acquired property has to be in one of the counties approved on the prop 90 list, noted above and on the California State Board of Equalization website.
• The newly acquired property has to be acquired either two years before or two years after the sale of the original primary residence.
• The filing of proposition 60/90 with the county assessor’s office will have to take place within 3 years from the sale of the original property.
• The newly acquired primary residence will have to be “less” than the original property sold.
• Homeowners must be age 55 or above to take advantage of this proposition.
• Individuals can only utilize this filing once in their lifetime.

Downsizing your home is a big decision. In fact, there are no small decisions when it comes to real estate in the Bay Area. Your personal circumstances must be carefully considered. Here are several key questions to ask yourself if you’re considering a move:

• What size home are you looking for?
• What, if any, capital gains taxes should you plan to pay after selling your current primary residence?
• Once your taxes and other expenditures have been calculated, how much money will you have for your next property investment?
• Will the purchase price of your new home be equivalent to the net proceeds from the sale of the old home?
• Will you need proceeds from the sale of your current primary residence to generate income to support your standard of living?
• Would retaining the assessed value of the property you are selling be the priority given your estate planning goals?

This should give you a basic understanding of Prop 60/90 and whether it may apply to your situation. As with any big financial decision, I encourage you to speak with your financial advisor as well as your CPA and/or attorney to determine the best strategy for you.

All material of opinion reflects the judgment of Adviser at this time and are subject to change. This material is not intended as an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services.