For many homeowners downsizing makes sense as they get older and family needs change. Although downsizing can be difficult and emotional with memories holding you back from selling your home and taking your life in a new direction, there are advantages to downsizing. Freeing the equity in your home and having a simpler lifestyle can bring the thrill of new adventures, more travel or other activities that you were not able to indulge in before.
However, paying higher real property taxes on the prospective new home often acts as a deterrent to downsizing. In California, Propositions 60, 90 and 110 allow qualified homeowners over the age of 55 or persons of any age who are severely and permanently disabled to transfer a property’s base value from an existing residence to a replacement residence, under certain conditions.
These propositions apply to homeowners who relocate within the same participating county or between participating counties (currently, Santa Clara, San Mateo, San Diego, Alameda, Los Angeles and Ventura).
Additional requirements for this tax treatment include: (1) the cost of the replacement property can’t exceed the current appraised value of the original property, (2) the replacement property must be acquired within two years of the sale of the original property, (3) the owner should file an application for this tax treatment within three years of the sale of their residence, and (4) the sale of the original residence and the replacement homes must be the taxpayer’s primary residence or the taxpayer must have received or be eligible for a Disabled Veteran's Exemption on both residences.
The overview of the tax laws and treatments described in this article is for general information purposes only. You should consult your tax attorney or your accountant regarding how they may apply in your particular circumstances.