This fall, Californians will be voting on Proposition 5. This proposition will make some critical changes to Proposition 13 and will drastically affect retirement decisions for many people.
To understand these propositions, it is good to know why these laws were initially passed.
In the 1970s, home prices in California started a drastic upward trend. This increase in property value also caused a drastic increase in property taxes.
It became apparent that some California residents would eventually be forced to move from their homes because they could no longer afford the property taxes.
This is why California passed Proposition 13 in 1978.
California residents who purchase a home create a tax basis. The tax basis is the value of your home at the purchase date and is the basis for the property tax payments you are charged.
The original Proposition 13 was simple, it limited property tax increases. Later propositions would amend Prop. 13 to make it much more encompassing.
Currently, Prop. 13 limits increases to property taxes, but also allows some homeowners to move one time and still retain the tax basis of their original home.
Homeowners who take advantage of Prop. 13 need to be over age 55 or with a disability, move within the same or reciprocating county and buy a home of equal or lesser value.
Proposition 13 has saved retirees thousands of dollars and allowed them to stay in their homes, close to family and friends.
Proposition 5 will amend several aspects of Proposition 13. It will now allow those over age 55 to move to any county in California and still retain their original tax basis, and it will allow it more than once. It also allows for the purchase of a home of greater value.
Without a break in property taxes, those on a fixed income would be in trouble.
Imagine a retired homeowner who originally paid $20,000 for a home that was now worth $700,000. That home homeowner could now be paying more than $7,000 a year in property taxes and may not be able to afford it.
I consistently meet with Napans who live in homes they purchased for less than $25,000.
Many of these homeowners couldn’t afford to stay in their homes if their property taxes had increased lockstep with their home values. Many of these older residents are on fixed incomes and couldn’t keep up.
I have also met people on a fixed income who desire to move to a different county to be closer to family, but can’t in part because their property taxes would be unbearable.
Critics of Proposition 5 argue that the current law offers more than enough protection for seniors and that the new proposition will limit desperately needed tax revenues.
I have learned over time that people make political choices, not because of reason, but because of feelings, although they would argue otherwise.
I won’t begin to tell you how to vote on Proposition 5, but I would encourage you to take extra time to decide. The implications of this proposition are enormous.