California passed the famous Proposition 13 more than forty years ago to rein in exorbitant property taxes. From the taxation perspective, the initiative also made it more beneficial for homeowners to stay in their homes.
Now, however, Californians are being requested to vote in favor of a tax measure that can make the tax expense more bearable for the senior citizens of the state who may want to relocate or downsize. This will free up houses for younger families and may put an end to the chronic housing shortage in the state.
This proposed measure will allow homeowners who are 55 and above to sell their primary house in one county without incurring major property tax expenses. These homeowners can move anywhere else in the state, provided their new home is valued about the same or less. This is great for people moving out of a highly valued area.
For example: Let’s say you bought a home 15 years ago for $300,000. Today that home is worth $600,000, but your property tax bill is based on the $300,000 rate. If this measure is passed, you would be able to sell your home for $600,000, move to another county, buy a $600,000 home, and still pay property taxes based on $300,000. The person who bought your home for $600k will pay property tax on the $600k.
The real estate industry is supporting this measure and has raised around $6.7 million for this cause. According to several reports, the industry is willing to shell out up to $50 million for this campaign.
This initiative will help avert the major tax bite for a lot of senior citizens who live in houses that are either too big or far removed from their families. Without this bill, folks looking to move closer to their families or children or downsize had to face excessive property tax increases, ranging from of 100% to 300%.
Proponents of this measure require a minimum of 585,407 signatures in order to be eligible for the ballot. According to experts, they are poised to reach almost one million signatures.
Tax portability initiative of Proposition 13 can also benefit older folks in many counties which are prone to natural disasters, whether it is the mudslides in the Santa Barbara region or wine country wildfires in Napa or Sonoma, by relieving them of a significant relocation penalty if they decide to move away from the disaster-torn county. The tax portability measure can also be availed by “severely disabled people.”
This measure can also help eliminate the current deterrent to selling property in the state. Under Proposition 13, property taxes on homes in California are restricted to one percent of the home’s acquisition value, while the annual increases are often capped at only two percent, provided the homeowners stay. Keep in mind that the sale of a house triggers a property reassessment for the new homeowners.
For the time being, a few groups that represent local governments have articulated their reservations regarding such initiatives, as they are of the view that incentives on property tax can reduce property tax revenues for the government that would otherwise be generated from the sale of homes.
Proponents of the initiative, on the other hand, argue that the effect of reduced property tax revenues due to this measure can be easily offset, to some extent, by a spur in economic activity elsewhere. However, the California Chamber of Commerce is in favor of this initiative and contends that it will help overcome the property shortage problem in the state.