Transferring Your Property Tax Base (continued…)



Dear Monica: I am over 55 and know that I can move my property taxes within my own county (Prop 60) or to 11 other counties (Prop 90), but I want to move to a county not allowing Prop 90 transfers.  Will I ever be able to do this?  Beth C.


Dear Beth: The California Association of Realtors (CAR) has proposed a Portability Initiative that would greatly expand your ability to move your property tax base.   It would allow people 55 years of age or older to move to any county in California and take their tax base with them, and not be restricted to buying only properties of equal or lesser value than the one sold.  If they bought a more expensive property, they could keep the old tax base for the portion equal to the sale price of the sold property and pay at the new rate for the portion exceeding this.  There would be no limit to the number of times this could be done.


Home prices have risen substantially in California in the past decades and two tax issues keep longtime homeowners in their homes: capital gains taxes, and property taxes.  This Initiative addresses the second issue, property taxes, by expanding the ability to carry ones old tax base to any new home.  CAR is gathering signatures now to qualify this Initiative for the November ballot.


Secondary Dwelling Units   



Dear Monica:  I have a detached guest house on our property and we would like to rent it to have some additional income.  I am in a zone of single family homes and don’t know whether a second unit would be allowed.  Can you advise?

Charles B.


Dear Charles:  It is probable that you will be able to convert your guest house to a secondary dwelling.  Nearly two-thirds of California cities and counties allow secondary dwelling units, owing to a lack of affordable housing and other compelling reasons.  And last year new laws took effect in California relaxing some of the previous requirements.


These ordinances allow homeowners to generate rental income, allow older owners to age in place by providing housing for care givers or family members, and a host of other uses.   Many cities require that the owner must live in one of the units in order to rent out the secondary one.  But some cities allow both units to be rented to third parties.  There are rules for parking, for obtaining variances if the unit exceeds the allowable limits on size and setbacks, and many other items.   Check with your city to determine what the specific rules in your neighborhood are for adding or converting space for this unit.


Year End Tax Planning


This is my last column of 2017 and many readers have questions about how the new tax bill will affect them in California.  Here are a few things you should discuss with your accountant or tax lawyer.


First, should you pay both installments of your property taxes because the deduction for state and local taxes will be capped at $10,000 in 2018?   Many Californians pay more than $10,000 per year in property taxes.   Another item you should discuss with your advisor is whether you should make an extra mortgage payment this year because next year the standard deduction will increase above the limit of many taxpayers’ total of deductions.


One change coming is that taxpayers will only be able to deduct interest on loans up to $750,000, down from the current allowable $1 million limit.  This is only for new mortgages created after November 2, 2017.  The average price in Menlo Park and Palo Alto is above $3.2 million so the reduced limit will have some effect.


It will take time to absorb what these changes mean for California real estate.  Will home values be affected?  It’s too soon to tell.

Median Home Prices Rise Again

Dear Monica:  Homes in my neighborhood have been selling at very high prices according to the latest reports.    We have lived in our home for many years and wonder if we should take advantage of this market and sell our property now.  What would you advise?  Jane D.


Dear Jane:  You should sell your home when you are ready to move.  If your home, your neighborhood and community still suit your needs, and you are close to your work, if you are still working, then you are probably not ready to move on.  If you are counting on selling at a peak time in the market, then the current market could well be such a time.  It’s always difficult to see the top of the market until it moves downward.


Do you have a place you would like to move to, or are you still deciding where you want your next home to be?  Are you willing to rent while you decide where to go next?  These are all questions you should answer before selling your home.  Talk to your accountant, your financial advisor and your family before making this decision.  Once you know you want to move, then you can make your plans.



The Holidays Are Upon Us

Dear Monica:  I am trying to buy a home and am frustrated with how few properties are on the market.  Now with the days getting shorter and the holidays are coming, am I correct in assuming there won’t be much new inventory coming on the market until January?  Meredith G.


Dear Meredith:  This is the time of year when the market typically slows down.  Sellers who plan to sell their homes often decide that they will wait until after the first of the year to do so because they assume that there aren’t enough buyers in the market in December.  This is not always the case.


I would advise you to stay attuned to the market such as it is because it is possible that the good property will come on and you won’t want to miss it.  You may even have an advantage over other buyers since many are busy with other activities.  But if the right property doesn’t appear before the end of the year, inventory should pick up in the new year.

Transferring Your Property Tax Base Under Props. 60/90

Dear Monica:  My husband and I are ready to cash out of the home we have owned for many years and move to a less expensive one either in the county in which we live, or to another county.  We want to keep our property taxes the same as they are now.  What are the rules on this?   Frances G.


Dear Frances:  You are referring to Propositions 60 and 90.  If you are 55 years of age or older you may transfer the base year value of your principal residence to a newly purchased or constructed replacement residence within the same county (Prop. 60).  Prop 90 allows you to transfer the base year value under the same rules to one of 11 other counties: Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolomne and Ventura.  It is a huge advantage for seniors to be able to do this, especially as many have reduced incomes due to retirement.


Out of the 58 total counties in California, only these 11 allow Prop 90 transfers.  All counties allow Prop. 60 transfers, that is, transfers within the same county.  On the State of California’s website, and on each county website, there is an explanation of the guidelines for these transfers.


What is Ahead for the Bay Area Rental Market?

Dear Monica: I own a few rentals in good Peninsula locations and wonder how the market will be in the first months of 2018 and whether rents will increase.  I have good tenants in each property but want to know what to expect this year.  Jane R.


Dear Jane:  The rental market has been strong in the past years with rents increasing almost continuously in good locations, at least until 2017.  Last year saw rents decrease in some areas where prices had skyrocketed and increase in areas that were more affordable.  The hottest rental markets cooled a bit in 2017 whether because of renters’ inability to pay higher prices, or more rental units being available.


As 2018 begins, the rental market may be strong and stable as potential homebuyers wait to see if or how the new federal tax law, passed in December 2017, affects the home purchase market.  As has been widely reported, Californians will only be able to deduct up to $10,000 of their state and local taxes in determining their federal tax liability.   In addition, the allowable limit for a mortgage interest deduction is now capped at $750,000 for new mortgages.  The previous limit was $1 million.  California and other states most affected by these changes are working on ways to mitigate the negative impacts these changes will bring but it is uncertain whether they will be successful.   Rental properties should be stable while the market absorbs the tax law’s effects.


Shall I Pay Off My Mortgage Early?

 Dear Monica:  I have received some money from a relative that I was not expecting and am thinking I might use it to pay off my mortgage.  Do you think this would be a good use of my small windfall?  Karen L.
Dear Karen: Paying off one’s mortgage can feel very good but it varies whether it makes economic sense to do this.   It’s a good thing that you would not be taking money from retirement or other savings accounts.  The gift was unexpected and doesn’t alter the financial plan you have set for yourself and your family.   You can save the money you would be paying each month and add it to your portfolio.
If you are financially stable with adequate cash reserves for contingencies, paying off your mortgage seems like a good thing.  If however you need the gift to build up your reserves, then it would be best to keep the mortgage in place and strengthen your financial assets.  Talk to your accountant to understand the tax implications of paying the mortgage and to your financial planner to see if it makes sense for you.

The Fires Will Affect How We Do Things in the Future

Dear Monica: I never thought as much about fire danger as I have this week with the Napa and Sonoma fires raging.  I live in town but Santa Rosa’s fires show that being in town doesn’t mean you are protected.  How do you think counties and cities will respond to increased fire danger?  Carol C.
Dear Carol:  It is too soon to know what the response of local and state governments will be but there is no doubt that changes in building, zoning and general codes in response to fire dangers are coming.  Individuals will be much more alert to creating defensible space around their homes.   While the homes in Coffey Park in Santa Rosa burned so quickly that it didn’t matter whether they had more fire-safe materials, there will certainly be an analysis of what building materials should and shouldn’t be used.
There will be emphasis on establishing an warning system any time the fire danger is high.  Citizens will take these alerts seriously, especially after this week.  So many people had almost no time to escape.  Expect forestry rules to be affected too.  We all need to stay informed so we can protect ourselves and our property in a disaster.

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