Initiatives to reduce property tax burdensBottom Highlights, Real Estate Thursday, February 18th, 2016
In 1978, the Constitution of California was amended to include the famous Proposition 13, the People’s Initiative to Limit Property Taxation. In a nutshell, what this Proposition accomplished was to limit the tax rate for real estate to no more than one percent of the market value. It set assessments of property at their 1975 value, restricting annual increases to an inflation factor not to exceed 2 percent per year. Reassessment was limited only to cases where ownership changed, or new construction was completed.
Since everyone pretty much has an interest in keeping property taxes low, Proposition 13 has been expanded to further limit reassessment and to allow owners to transfer their base year values to others. Remember that lower property taxes translate to higher prices, so owners have a vested interest in keeping taxes as low as possible.
Here is a summary of some of the new propositions adopted by California voters since Proposition 13:
PROP. 60: In 1986 this proposition was passed to allow homeowners 55 years of age and older to transfer an Existing Prop. 13 factored base year value to a replacement residence within the same county.
PROP. 90: In 1988 Prop. 60 was further amended to allow homeowners 55 years of age and older to preserve their base year values even when moving to a different county
PROP. 110: Passed in 1990, this proposition allows severely and permanently disabled homeowners to transfer their Prop. 13 base year values to a replacement residence.
PROP. 50: In cases where a home has been significantly damaged or destroyed (over 50 percent of the value lost) in an area declared as a disaster area by the governor, taxpayers may transfer their base year values to a replacement residence.
PROP. 3: If your home has been taken by eminent domain, this provision allows you to transfer your base year value to a comparable replacement property anywhere in California.
PROP. 58: This proposition affects parent/children and children/parent transfers and preserves base year valuations. It pertains to individuals only and not transfers between legal entities like corporations or partnerships. There is a limit of $1 million on taxable value regarding transfers of non-principal residential property but no limitation on principal residence transfers.
PROP. 193: This prop extends the terms of Prop. 58 to apply to transfers between grandparents and grandchildren.
All of these amendments have qualifying terms, and readers are encouraged to delve into these specifics to determine their eligibility under the terms of the propositions.
It is interesting to note that passage of Proposition 13 and the succeeding propositions produced a groundswell of sentiment throughout the U.S. supporting tax reduction. Many believe this contributed to the election of Ronald Reagan in 1980, and to continuing Republican advocacy of tax relief.
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