How and how much homeowners can transfer tax base to their next home

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | November 12, 2024

Article originally posted in Orange County Register on November 7, 2024

Voters in 2020 approved Proposition 19, which allows property owners and those who inherit a primary residence to transfer their base year (taxable value), either from a previous home to a new home, or one for which they are assuming ownership.

Today, in column three on this hot topic, let’s explore the math of how the 55-and-over crowd, severely disabled, and victims of wildfires and other natural disasters can transfer their base year value plus inflation adjustments of their primary residence to a replacement primary residence anywhere in the state.

This transfer is allowed, regardless of the value of the replacement primary residence, within two years of the sale of the original primary residence.

Prop. 19 limits a person who is over 55 years of age or severely disabled to three transfers under these provisions.

For those eligible, transferring the taxable value of the departing residence to a replacement primary residence of equal or lesser value, means the taxable value of the replacement residence will be the same as the departing residence.

For example, your departing residence sells for $1 million. Your base year value is $300,000 (the amount you pay your property taxes on) as you’ve been in that home for many years. You are downsizing and buying a home for $700,000. You would be able to keep the $300,000 base year value for which your property taxes of the departing residence are based.

If the replacement residence is of greater value than the original primary residence, the taxable value of the replacement residence is calculated by adding the difference between the full cash value of the departing residence and the full cash value of the replacement residence.

For example, say your departing residence sells for $1 million. Your base year value is the same, $300,000. You pay $2 million for your replacement residence. Take the difference in prices ($1 million) and then add it to your $300,000 base year value. Your new base year value is $1.3 million. That base year can go up as much as 2% per year, according to Proposition 13’s inflation adjustment mandates.

If you buy a replacement home or newly constructed home before you sell your departing residence, then you receive 100% or less of the full cash value of the original home.

If you purchase your replacement or newly constructed home within the first year after the sale of the departing residence, then you can add 5% to your departing residence value, or 105%.

If you purchase your replacement or newly constructed home within the second year after the sale of your departing residence, then you can add 10% to the departing residence value or 110%.

For example, say your departed residence sold for a full cash value of $700,000 with the factored base year property value at $250,000. Assume you purchase your replacement home for $900,000 within one year of the original home sale. The departed residence adjusted full cash value equals $700,000 x 105% = $735,000.

Take the full cash value of the replacement residence ($900,000) and subtract the adjusted cash value of the departed residence ($735,000) = $165,000. Add the factored base year value of $250,000 and the $165,000 which equals $415,000 for your new factored base year value for property tax purposes.

You must be eligible for the homeowner’s exemption to be able to transfer your tax base. Eligible means the homeowner must own and occupy the home as a principal residence.

Proposition 19 base year value transfer claim forms are available from the assessor of the county where the replacement home is located. Property owners must apply; the county assessor does not do this automatically.

Freddie Mac rate news: The 30-year fixed rate averaged 6.79%, 7 basis points higher than last week. The 15-year fixed rate averaged 6%, 1 basis point higher than last week.

The Mortgage Bankers Association reported a 10.8% mortgage application decrease compared to one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was 368 more than this week’s payment of $4,992.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.75%, a 15-year conventional at 5.625%, a 30-year conventional at 6.25%, a 15-year conventional high balance at 6.125% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high-balance conventional at 6.75% and a jumbo 30-year fixed at 6.75%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego and Orange counties.

Eye-catcher loan program of the week: A 30-year mortgage, with 30% down locked for the first 5 years at 6% with 1 point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.