Before Prop 13, there were no limits on increases for the property-tax rate. Some properties were reassessed 50% to 100% in just one year and their owners’ property tax bills increased accordingly.
Under Proposition 13 tax reform, property tax value was rolled back and frozen at the 1976 assessed value level. Property tax increases on any given property were limited to no more than 2% per year as long as the property was not sold. Once sold, the property was assessed at 1% of the sale price, and the 2% yearly cap would be applicable in future years.
This allowed property owners to estimate the future property taxes by determining the maximum amount taxes could increase as long as one owned the property.
Since 2012, California home prices have been climbing towards pre-Recession heights. This puts empty nesters in a difficult situation, unable to downsize because of the high property associated with purchasing a new home. This incentivizes people to stay in their homes longer than they would otherwise, reducing supply and creating an inefficiency in the market.
As a result, Proposition 60 (Prop 60) was passed by the voters on November 6, 1986. Prop 60 allows homebuyers over 55 years of age to transfer their tax assessments from their prior home to their new home if the new home’s market value is equal to or less than the prior home’s value. However, Prop 60 is restrictive: homeowners can only transfer their tax base once in their life. Furthermore, counties, not the state, decide whether tax assessments can be transferred across county lines or at all.
This is why the California Association of Realtors have proposed the California Proposition 13 Tax Transfer Initiative, which would allow homeowners over 55 years of age and those who are severely disabled to keep those lower tax obligations for life. In other word, those who are eligible will be able to transfer their tax base when purchasing a new property, regardless of where in California they move or how many times. Supporters say that this change will encourage older homeowners to move, thereby easing the state’s housing crisis by increasing inventory.
Backers of the ballot-initiative have collected over one million signatures and only need 585,000 verified signatures needed to qualify for the ballot. If passed, all Californians 55 years and older who are eligible will gain a major real estate tax-advantage when selling and rebuying property. Opponents of the measure are quick to point out that it will result in major losses in property tax revenue for schools and social services. According to this article, to avoid a costly political battle the California Association of Realtors is open to negotiating with legislators, however, if no agreement is reached the association will proceed with the current ballot initiative.
Learn more about the California Proposition 13 Tax Transfer Initiative here.
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