SANTA CRUZ - Many homebuyers are not aware of a little known rule that can save money for homeowners who are selling their home and buying another.
There are many reasons that keep homeowners from selling their home and buying a different home. One of them is that their property taxes are likely to go up significantly. Under Proposition 13, passed in 1978, property taxes no longer will increase with increasing home values; property taxes are set at the time of sale of the home and have a base rate of 1 percent of the sales price of the home plus a charge for miscellaneous school, public works projects, etc.
From a practical standpoint, initial annual property taxes will most likely be set at the time of purchase of the home between 1.1 - 1.25 percent of the sales price. While the taxes no longer increase with a home‟s value, this law did allow property taxes to increase a modest 2 percent per year.
Suppose you bought your home in 1999 for $400,000, which was just above the median price that year. The property taxes on this home were $383 per month when you bought it and would have now grown to $540 based on the 2 percent per year maxi-mum. Now, 18 years later, your home is worth $800,000 and you want to downsize. You quickly calculate that if you buy a re-placement home for $700,000, your property taxes, based on Proposition 13, would increase $189 per month to $729 per month or, under this proposition, your taxes would remain at $540.
This is where California State Proposition 60 comes to the rescue. This little known re-vision to the Revenue and Taxa-tion Code was passed by the vot-ers in 1986 and allows home-owners to take their current property tax base with them when they buy another home in the same county. While Santa Cruz County does not accept the “transportation” of a tax base from another county, some coun-ties in California will accept the tax base from another county.
This proposition allows you to receive property tax relief if you apply for it within two years of the sale of your present home. Certain other restrictions also apply: either you or your spouse must be at least 55 and you must buy a principal residence of a value that is no higher than 110 percent of the home you are selling. If you meet all of the conditions you can keep the same property taxes that you had been paying on the principal residence that you just sold. Check out „http://www.co.santa-cruz.ca.us/tax/60pam.htm‟. If the prospect of higher property taxes has kept you from considering the purchase of a replacement home, find out more details from your real estate agent, mortgage profession-al or the County tax assessor‟s office.
Speaking of property taxes, the tax bills for the coming fiscal year will be coming out soon and property taxes for the period July 1, 2016 – December 31, 2016 will be due and payable early in November and late if paid after December 10. There is an automatic 10 percent penalty if you are late.
Written by Peter Boutell, Mortgage Consultant at Santa Cruz Home Finance. You may reach him at (831) 824-3468 or email him: Peter@SantaCruzHomeFinance.com