See homes for sale in Sacramento region suburban pocket neighborhoods you may never have heard of Sharon Okada The Sacramento Bee
See homes for sale in Sacramento region suburban pocket neighborhoods you may never have heard of Sharon Okada The Sacramento Bee

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Capitol Alert

Own a home and looking to move? California Realtors want to get you a major tax break

By Jim Miller

jmiller@sacbee.com

September 28, 2017 12:01 AM

UPDATED September 28, 2017 03:31 PM

California homeowners looking to move up would get a major financial break under a possible 2018 ballot measure to change a key provision of the state’s landmark tax law.

Proposition 13, the 1978 ballot measure, has discouraged homeowners from moving to pricier homes because a property’s assessed value is based on its most recent sales price.

Any of the three proposals crafted by the California Association of Realtors would be a significant change to Proposition 13, which caps property taxes at 1 percent of assessed value.

“A good number of folks are still sitting on their properties with the original Proposition 13 tax base on them,” said Alexander Creel, the Realtors group’s senior vice president for governmental affairs. “They really would like to move on, and they’re not so in love with their house anymore. But they are in love with their property taxes.”

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The association last month filed three versions of a possible 2018 ballot measure, and the state Attorney General’s Office cleared all three to begin gathering the 585,407 valid voter signatures each needs to qualify for the ballot. Realtors will soon begin polling on the different measures, Creel said, with a final decision about whether to proceed when association leaders meet in San Diego in a couple of weeks.

All of the proposals would change how the assessed value would be calculated for a newly purchased home.

Assessor's Office managers got bigger tax reductions than neighbors in these neighborhoods

Former Assessor Kathleen Kelleher and former Assistant Assessor John Solie received significantly lower valuations than neighboring property owners during the recessionary housing crash. One difference: their properties were appraised by outside assessors under rules designed to prevent conflicts of interest. Neighbors had their properties valued by a mass appraisal computer system.

Brad Branan The Sacramento Bee

For instance, a homeowner’s current house may sell for $600,000 on the open market, but the assessed value is $400,000 because of Proposition 13. If he or she upgrades to an $800,000 home, the annual property tax bill would double, from roughly $4,000 to $8,000. Under the formula proposed by the Realtors’ initiatives, however, the tax bill would reflect the sales price of the current home and come in at around $6,000.

The measures differ in their scope.

One version applies to all homeowners anywhere in the state. Another would apply to all homeowners moving within their county of residence or to a county that allows intercounty assessed value transfers. And a third version would apply to homeowners 55 or older moving anywhere in the state.

The latest proposals would offer little direct benefit to Californians navigating the state’s housing affordability crisis. It excludes first-time homebuyers, who lack equity and often have trouble coming up with a down payment. Nor would it directly help residents of the more than 6 million renter-occupied housing units.

But Creel and others said the proposal’s ripple effects would free up more starter homes as well as generate additional housing in job-heavy coastal areas, as some retirees take their tax base and leave town.

The proposed formula would also help seniors or others seeking a smaller house that costs more than their current home’s assessed value.

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Jon Coupal, president of the Howard Jarvis Taxpayers Association, named after one of Proposition 13’s authors, said the measure would be a positive change to tax law because it would encourage longtime homeowners to move.

“We have tens of thousands of empty-nesters sitting in large homes,” Coupal said. “Would we not want to incentivize their ability to sell and move someplace else in California and open up their home to younger families with children?”

The centerpiece of California’s “taxpayer revolt” of the late 1970s, Proposition 13 stands among the most far-reaching products of the state’s initiative process. It reshuffled state and local finances and remains popular among voters almost 40 years later, scuttling occasional interest in rolling back some of its provisions.

Proposition 13’s assessment rules have been altered only a handful of times, and none of those changes would be as far-reaching as the latest proposals.

▪ Proposition 60 in 1986 allowed homeowners 55 or older, for one time if they move in their county of residence, to buy a new house of equal or lesser market value and take their current assessed value with them.

▪ Proposition 90 in 1988 expanded the exemption to also apply to counties that have reciprocity agreements. There currently are 11 counties with such agreements, covering two-thirds of the population. Many rural counties popular with retirees are not among them.

▪ Proposition 110 of 1990 provided the same tax breaks for severely and permanently disabled people.

Few people get those tax breaks, state data show, with granted claims representing less than 1 percent of all transfers of single-family homes in 2014, 2015 and 2016. Sacramento County had less than 200 combined in those years, out of more than 84,000 single-family home transfers.

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The latest proposal has large implications for local governments and schools.

Property taxes are a major source of money for cities, counties and special districts, and also offset what the state has to pay for schools. The Legislature’s nonpartisan fiscal analyst estimated that the Realtors’ proposals would reduce revenue from a few hundred million dollars a year to several billion dollars a year.

No group has publicly come out against a possible measure. The California Teachers Association, which has opposed past proposals that could reduce school revenue, will not take a position unless a measure qualifies for the ballot, a spokeswoman said.

Coupal and Creel, though, said they question the revenue loss estimates. Easing tax rules would spur residential sales and raise assessed values, they say. Any savings on property taxes, Coupal added, would be spent to buy taxable goods, raising sales-tax revenue.

Marin County Assessor-Recorder Rich Benson, the president of the state assessors association, said his group has not taken a position on any of the proposals. Its impacts on local government revenue and housing prices are unclear, he said.

“Before Proposition 13, the slogan was ‘I’m being taxed out of my home.’ After Proposition 13, the slogan is ‘I can’t afford to move,’ ” Benson said.

If the real estate industry decides to move forward, the Realtors association could tap its sizable resources for any campaign. Its political committees spent millions during the 2015-16 election cycle.

Gathering signatures to qualify a ballot measure wasn’t his group’s first choice, Creel said. Bills on the issue did not advance in the Legislature.

Buying a more expensive home?

Under a possible November 2018 ballot measure, homeowners who buy more expensive homes could see significant property tax savings.

Buying a less expensive home?

Under a possible November 2018 ballot measure, homeowners who buy a less expensive home could avoid a large property tax hit.