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Rental Property Tax

What You Need to Know about the Rental Property Tax

A new proposition on the ballot for this November offers a unique experiment with California’s established Proposition 13 tax laws. It is particularly applicable to you if you are 55 years old or severely disabled.

Proposition 5 grants a property tax break to senior citizens and disabled persons, allowing the transfer of their property tax to a replacement property of equal or lesser value as defined in the county where the property is located.

This is one of the more intriguing experiments in state property-tax law since Proposition 13 was passed 40 years ago. Prop 13 limited local property taxes to 1 percent of the purchase price – or the 1975 assessed value – while capping subsequent increases at 2 percent annually.

In addition, Prop 13 requires a two-thirds majority for legislative approval of new state taxes as well as two-third voter approval for new local taxes. It’s a well-liked law for a simple reason: it allows homeowners to enjoy predictable expenditures. Moreover, your home’s increased value will not force you out. Instead, you move when you choose.

Let’s go back to Prop 5 for the minute. Many California homeowners don’t want to move because it means forfeiting their ultra-low property tax rate under Prop 13. However, should Prop 5 pass, homeowners aged 55 or more ould be allowed to transfer their existing property tax rate to a new home.

This is a total game-changer to many California homeowners – and was proposed by the California Association of Realtors. The point: encouraging older homeowners living in empty homes too large for their needs to move on without worrying about losing their tax benefits.

“Proposition 5 would amend Proposition 13 (1978) to allow homebuyers who are age 55 or older or severely disabled to transfer the tax-assessed value for their prior home to their new home, no matter (a) the new home’s market value; (b) the new home’s location in the state; or (c) the number of moves,” the Ballotpediaassessment of the proposition reads. “As of 2018, homebuyers over 55 years of age were eligible 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 and once in their lifetimes. Furthermore, counties, not the state, decide whether tax assessments can be transferred across county lines.”

In the likely event that the new home is differently valued than the old home, Prop 5 would allow for an adjustment between those amounts. “If the new home has a higher market value than the prior home, the assessed value would be adjusted upward,” Ballotpedia reports. “If the new home has a lower market value than the prior home, the assessed value would be adjusted downward.”

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