Real Estate purchase question RE: tax basis

[IBWino]

Quote:

Originally Posted by Another Reader One more thing to consider. If she sells first, her purchase price can be higher by up to 5 percent the first year after the sale and 10 percent during the second year. Escrow has to close within two years for the base year value transfer to apply.

That's good to know, but as I mentioned above, it's a rare opportunity to get her close to us (within walking distance) and it seems too good to pass up. Having her that close would greatly improve her's and our circumstances. She's mentally very sharp and strong willed, but physically frail and may not be able to drive soon. As it is, my wife already takes her to do most of her shopping, doctor's appointments, etc.

Best Regards,
Wino

[pb4uski]

Quote:

Originally Posted by IBWino ....If her current property sells for less than the new property, her property taxes would increase from approximately $1000/yr to $6000/yr. She's on a fixed income, but she thinks she can still afford the higher tax rate, so it's probably not a show-stopper. -Wino

Every time I hear these stories I am glad that I don't live in California or any other jurisdiction that jerks taxpayers around like you describe.... an increase like that is nuts if the property values are similar. Around here and much of the country, property taxes are based on a fair value but other mechanisms are used to make taxes more affordable for residents, veterans, low-income residents, etc.

[Another Reader]

And there is yet another twist. If MIL transfers her base year value and DW inherits the property, DW can transfer the base year value to her, using Prop 58, the parent to child exclusion. My father transferred his 1975 base year value when he moved between counties to be closer to me. When he died, I inherited the property and the 1975 base year value. I haven't verified this, but it might be possible to move into that property, put a homeowner's exemption on it for a couple of years, and transfer the 1975 base year value again.

I think I just heard pb4uski collapse in an apoplectic fit....

[RobbieB]

California is #17 / 50 best property tax states in the country

[Another Reader]

Quote:

Originally Posted by RobbieB California is #17 / 50 best property tax states in the country

Even better than #17 if you have an old base year value. I'll bet your property taxes are very low as well.

[pb4uski]

Quote:

Originally Posted by Another Reader ....I think I just heard pb4uski collapse in an apoplectic fit....

Close!

Talk about a convoluted cluster you-know-what. Why not just provide property tax relief to those who need it based on household income rather than play such games?

[pb4uski]

Quote:

Originally Posted by RobbieB California is #17 / 50 best property tax states in the country

I suspect that actual experience varies based on how one fits into the relief scheme.

[IBWino]

Quote:

Originally Posted by pb4uski Every time I hear these stories I am glad that I don't live in California or any other jurisdiction that jerks taxpayers around like you describe.... an increase like that is nuts if the property values are similar. Around here and much of the country, property taxes are based on a fair value but other mechanisms are used to make taxes more affordable for residents, veterans, low-income residents, etc.

It's a bit of a two edged sword. Property values in our area (Sonoma County, CA) have skyrocketed over past couple of decades. My wife and I have owned our current home for almost 20 years, and our property taxes are one-fourth what some of our recently arrived neighbors pay. Prior to the passage of Prop. 13, our property value would have been reassessed regularly and we would be paying the same as our neighbors. However, with Prop. 13, as long as we stay put, our property taxes can only rise 2% per year (assuming that voters don't approve any special parcel taxes that are additional to the base tax). We planned for this. We want to retire in this home, and knowing our property taxes won't increase substantially is of great benefit.

Prior to Prop. 13, there were many cases of retirees on fixed incomes being priced out of their homes because of reassessed property values. The politicians refused to address the issue, and so the public enacted Prop. 13, which has now become sacrosanct.

[RobbieB]

Same here. Been living here for 27 years. House worth 350K, property taxes 2 grand a year. No Mello-Roos either.

Sweet!

[pb4uski]

Quote:

Originally Posted by IBWino It's a bit of a two edged sword. Property values in our area (Sonoma County, CA) have skyrocketed over past couple of decades. My wife and I have owned our current home for almost 20 years, and our property taxes are one-fourth what some of our recently arrived neighbors pay. Prior to the passage of Prop. 13, our property value would have been reassessed regularly and we would be paying the same as our neighbors. However, with Prop. 13, as long as we stay put, our property taxes can only rise 2% per year (assuming that voters don't approve any special parcel taxes that are additional to the base tax). We planned for this. We want to retire in this home, and knowing our property taxes won't increase substantially is of great benefit. Prior to Prop. 13, there were many cases of retirees on fixed incomes being priced out of their homes because of reassessed property values. The politicians refused to address the issue, and so the public enacted Prop. 13, which has now become sacrosanct.

Assuming the same assessments, while you would be paying the same as your neighbors, you would likely be paying much less than they are paying because the entire grand list would be increasing. If the municipal budget is the same and the grand list increases then the tax rate decreases correspondingly but the tax bill for any individual property would be unchanged.

For example, let's say the town budget is $20 million and the Grand list is $10 billion... the tax rate is .02 and a property appraised at $500k would pay $10k in property tax. If property values increase 20%, the grand list increases to $12 billion and assuming the same $20 million town budget the tax rate decreases to .0167 and the property's appraised value rises to $600k but the tax bill is still $10k.

IMO the problem of retirees on fixed incomes being priced out of their homes is better addressed by property tax relief for those with low income rather than bastardizing the appraisal process to the point that it is nonsensical.

[RobbieB]

Appraisals here in CA are like they are anywhere. Property is viewed and compared to comps for a proper value for loan validations. Property tax is figured on the sales price, not the appraisal.

It's really straight forward and simple. If you stay in your house a long time you benefit. If you trade a lot the you pay the price. If you like new houses they most likely come with Mello-Roos.

[pb4uski]

I understand it... I just think it is nutty. You can have two identical houses next to each other and the owners pay vastly different property taxes depending on their tenure... that seems totally unfair to me... assuming that you equally use municipal services the newcomers are subsidizing the people who have been there for a long time.

[RobbieB]

Yes, this is true. It favors stability though which can be a good thing.

CA has a high state income tax and a high sales tax. So at least we get a preferential property tax for "long timers"

[Another Reader]

Quote:

Originally Posted by pb4uski Assuming the same assessments, while you would be paying the same as your neighbors, you would likely be paying much less than they are paying because the entire grand list would be increasing. If the municipal budget is the same and the grand list increases then the tax rate decreases correspondingly but the tax bill for any individual property would be unchanged. For example, let's say the town budget is $20 million and the Grand list is $10 billion... the tax rate is .02 and a property appraised at $500k would pay $10k in property tax. If property values increase 20%, the grand list increases to $12 billion and assuming the same $20 million town budget the tax rate decreases to .0167 and the property's appraised value rises to $600k but the tax bill is still $10k. IMO the problem of retirees on fixed incomes being priced out of their homes is better addressed by property tax relief for those with low income rather than bastardizing the appraisal process to the point that it is nonsensical.

That's not how it works. Prop 13 set the tax rate at 1 percent of assessed value plus the cost of servicing any previously existing bonded indebtedness. New bonds could only be passed with a two-thirds majority. And "fees" and parcel taxes were exempted. The voters have passed a lot of bonds with two-thirds majority and have never met a $50 a year parcel tax they did not like. My total taxes are 1.6 percent of assessed value, which is based on my 1989 purchase price.

School financing in California is run by the state. The school property tax money all goes to the state and is returned in a "fair" way that is court approved. Local governments prefer commercial and industrial development now because less money is spent on services for those uses. Sales tax has also become a major component of municipal finance. Cities do not set a budget and then set the tax rate. Instead, they estimate how much is coming in and then write the budget.

[pb4uski]

Quote:

Originally Posted by Another Reader That's not how it works. Prop 13 set the tax rate at 1 percent of assessed value plus the cost of servicing any previously existing bonded indebtedness. New bonds could only be passed with a two-thirds majority. And "fees" and parcel taxes were exempted. The voters have passed a lot of bonds with two-thirds majority and have never met a $50 a year parcel tax they did not like. My total taxes are 1.6 percent of assessed value, which is based on my 1989 purchase price. School financing in California is run by the state. The school property tax money all goes to the state and is returned in a "fair" way that is court approved. Local governments prefer commercial and industrial development now because less money is spent on services for those uses. Sales tax has also become a major component of municipal finance. Cities do not set a budget and then set the tax rate. Instead, they estimate how much is coming in and then write the budget.

You misunderstood. I was not saying that is the way it works in California... I was explaining the way it works in much of the country and that if property values go up it does not necessarily mean that your property taxes increase because there is a corresponding decrease in the property tax rate. In most other parts of the country, your property taxes increase because of increases in municipal budgets and/or where the value of your property increases more than the increase in the grand list so your relative share of the grand list increases.

IMO the California approach is unfair and stupid, but I'm sure some Californians would disagree and I'm fine to agree to disagree.

[IBWino]

California's overall tax system is a mess and needs overhaul. But like most things these days, there are too many special interests on the losing side for our politicians to even consider supporting such an endeavor.