Legislation would expand tax-basis transfer on homes
Chris and Carol Leister are selling their home of 33 years in Castro Valley and moving to a new 55-plus community in El Dorado Hills to be closer to their children and grandchildren in Sacramento.
The Leisters are taking advantage of a state law that gives homeowners who are least 55 a once-in-a-lifetime chance to transfer the property tax base from their primary residence to one of equal or lesser value. This lets longtime homeowners who have a low property tax assessment thanks to Proposition 13 avoid a potentially steep tax increase, even on a cheaper home.
However, the replacement home must be either in the same county as their current home or in one of 11 counties that accept intercounty transfers of property tax assessments. El Dorado
County is one of them. In the Bay Area, only San Mateo, Santa Clara and Alameda counties participate.
Legislation in the Assembly would expand property tax portability by allowing such transfers to any county in the state, starting Jan. 1, 2019.
Because it would amend the state Constitution, it would need to be approved by a simple majority of voters. ACA7 would put it on the ballot, if two-thirds of the Legislature approves. A companion bill, AB1322, would implement the ballot measure. Raul Bocanegra, D-San Fernando, introduced both bills in February.
The Howard Jarvis Taxpayers Association and California Association of Realtors support the idea.
“We think that it will prove to be an integral part of addressing the housing crisis in California. It will provide an incentive for emptynesters to move out of bigger homes and to downsize and make their previous home available for younger families,” said Jon Coupal, president of the Jarvis group.
The California State Association of Counties and the League of California Cities oppose it, saying it would result in a loss of tax revenue to local governments and erode their decisionmaking process.
Under Prop. 13, which was passed in 1978, property in California is reassessed only when it is sold or transferred. The reassessment is usually at the sales price. After that, the assessed value can go up by an inflation factor not to exceed 2 percent per year — plus the value of additions or major improvements. Annual property taxes are 1 percent of the assessed value, plus any voter-approved local taxes.
Cities and counties rely on properties turning over to boost tax revenue. But since 1978, voters have approved numerous propositions that exclude certain real estate transfers from reassessment.
Propositions 58 and 193 excluded transfers between parents and children and from grandparents to grandchildren, respectively.
Proposition 60 let homeowners 55 and older sell a principal residence and transfer its current property tax assessment (called the base-year value) to another of equal or lesser value within the same county, but only once. Proposition 90 extended these provisions to a replacement residence in a different county, but only if that county accepts incoming transfers.
Proposition 110 extended these provisions to severely and permanently disabled people of any age.
The Leisters figure that Prop. 90 will save them about $2,600 a year in taxes. Although the cost of their new home in El Dorado Hills is about half what they are getting for their Castro Valley home, thanks to Prop. 13, the assessed value of their current home is about $260,000 less than the value of their new one.
The Bocanegra bills would require all counties to accept transfers of property tax assessments from people who qualify under Prop. 60 or 110.
That would help Peter deGroot and his wife, Mary Adams. They would like to sell their home of 20 years in Pacifica and buy a multiunit property in Marin County, where their 22-year-old daughter, who is severely autistic, could live autonomously near the service provider that best suits her needs.
They found a home with an odd floor plan in San Rafael last year that would have worked with some remodeling. But because Marin does not accept Prop. 90 transfers, their property taxes would have increased by about $5,000 a year. So they passed.
AB1322 passed the Assembly Revenue and Taxation committee with 10-0 bipartisan support and is now with the Appropriations Committee, where “it is going up against every other bill” that has a cost attached, said Christopher Carlisle, a lobbyist for the Realtors association.
The State Board of Equalization estimates that the measure would cost local governments $1.9 million a year in lost taxes on replacement homes, although about half of that would be made up by the state under its school-funding formula. That’s not a lot, considering that property taxes raised $55.5 billion in fiscal 2014-15. The board noted that many of the largest counties, including Los Angeles, already accept Prop. 90 transfers.
Supporters say the $1.9 million cost estimate is too high, because it ignores any property tax increase that might occur when the original home is sold. Even so, Carlisle said, the bill could die in the appropriations panel, which “is very stingy with their pennies.”
Last year the Realtors association sponsored a bill that would have let people 55 and older transfer their property tax assessment to a more expensive home, although the difference in value between the old and new homes would have been added to the assessment. That bill passed the Senate Governance and Finance Committee 7-0, but died in appropriations.
Carlisle said counties should welcome older homeowners who qualify for the one-time transfer. “They don’t have kids in schools. They probably have more disposable income” than younger ones, he said.
Dorothy Johnson, a lobbyist for the association of counties, said that should be up to each county to decide. Bocanegra’s legislation is “a way for real estate agents to sell more homes,” she said. “If this is an important statewide policy, we suggest the state” make up all lost revenues.
El Dorado County adopted a Prop. 90 ordinance in December 2009, when “we were struggling like every other area,” said Assessor Karl Weiland. The county’s real estate community proposed the idea “to give them one more arrow in the quiver to try and recover from the recession. They were hoping for another gold rush up here, which didn’t happen.”
However, as the economy recovered and Bay Area home prices soared, “a lot of people were cashing out, looking to move to the foothills and retire,” Weiland said. Prop. 90 “put us in a more competitive position compared to other retirement communities in the foothills.” In August, the county voted to renew its Prop. 90 ordinance for another five years.
Conversely, when Santa Clara County was looking for ways to increase revenue during the recession, “I recommended that the Board of Supervisors pull out of Prop. 90,” Assessor Larry Stone said. The board tentatively agreed, “then the Realtors lined up (against) me and the board voted unanimously not to terminate Prop. 90.”
Stone still thinks it’s a bad idea. “We’ve gotta stop giving away the tax base of the state. It’s impacting public education, roads and basic governmental services,” he said.
Last fall the Realtors association board endorsed an even broader tax-portability idea. It would let all homeowners, regardless of age, transfer their property tax base from a primary home to another one anywhere in the state an unlimited number of times. However, if the new home’s market value is higher than the old one’s, the difference would be added to the assessment. Florida enacted a similar portability act in 2008, although it limits the amount of tax savings that can be transferred to $500,000. The idea has not made it into a bill in California.