California Property Tax Transfer laws and Real Estate Prices
1/12/2005I've read many, many articles on the current real estate boom and the potential bubble that may soon burst. One subject that hasn't come up is the effect of California property tax transfer laws on baby boomers and their homes.
Proposition 60 of 1986 allows you to transfer the tax base of your property when you sell your home and buy a less expensive one after you reach the age of 55 . Proposition 90 allows you to transfer that tax to other counties if they allow it.
Baby boomers have been hitting 55 years of age over these last few years, and the recent run-up in California home prices means that many of them have hit the 250k/500k limit on tax exemptions on the profit of a home sale, and they may wish to "reset" that limit by moving. In addition, most of their children have grown up and moved out or are on the verge of doing so, meaning that boomers may not need or wish to care for such a large home. Propositions 60 and 90 allow them to move into smaller homes while holding onto their original property tax base (which has now at least doubled over the last 4 years).
These three factors provide significant motivation for baby boomers to sell their high-priced homes, cash out on some of that tax-free equity and move to a smaller home. After they move, the tax exception on home appreciation starts over. If enough of them make this decision to downsize and cash out, it may take a significant amount of money out of California real estate in a fairly short amount of time. Combine that with higher interest rates, tightening of the recent loose lending practices and the exodus of Californians that have been "priced out", and you can see what might happen.
Anecdotally, I have heard at least three couples who are considering, or have already made this transaction for the exact reasons that I stated above.
I guess we'll see what happens.
1 Comments:
Yeah right man. Real estate only goes up!
By Anonymous, at 6:35 PM
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