Downsizing Homes for Retirement? Read This First

Are you thinking of downsizing homes for retirement?

If you live in California, it can pay to be strategic about it. The reason is California’s Propositions 60/90, which can make it possible to port your current property tax bill to a new home.

Read on to learn more about this special tax break and whether it might be right for you.

Propositions 60/90 exchange basics

Propositions 60/90 applies to homeowners who are over age 55, selling a home, and buying one of equal or lesser value. In other words, the market price of your new home has to be lower than the market price of your current home.

If you qualify, you’ll be able to keep paying your current property tax rate on the new home, which can save you thousands of dollars a year. This is particularly useful for homeowners who have been in their home for a long time, or who have experienced significant price appreciation in the value of their home.

The tax break applies for those who are moving within their own county. If you move to a different county, you can port your current property tax bill only if you move between specific participating counties.

 

How does it work?

Let’s say you bought a home many years ago for $250,000. You’ve seen the value of your home rise significantly since then, and today you’d be able to sell for $800,000.

In the meantime, you’ve been paying property tax on the assessed value of your home, which may have been calculated by the price you paid plus a small percentage increase each year.

Let’s walk through how the numbers might work.

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For the sake of example, let’s say your current home has an assessed value of $325,000 with a commensurate property tax bill of $4,063 per year, or 1.25%.

If you were to sell your home for $800,000 and buy a retirement condo for, say, $725,000 in your area, your property tax bill would rise accordingly to reflect the higher value of your new home. At 1.25%, your annual bill would jump to $9,063. Please note that these calculations reflect a simplified example of how this tax break can work and are for illustrative purposes only. They are not a reflection of any actual tax bill.

This is where the Propositions 60/90 exchange comes in: if you’re eligible to transfer your current property tax rate, you’ll be able to move without increasing your property tax bill at all.

Important considerations

This tax break can bring critical savings to families in retirement, but it’s important to remember that it doesn’t apply to everyone.

First, each homeowner is only eligible for one such exchange per lifetime, with exceptions made only in cases of disability.

Also, the actual savings you experience will depend on where you’re moving to and from, whether there are other local property taxes that might be levied on your new property, and (for those moving between counties) whether the tax break can be applied to your new home purchase.

Finally, other costs or financial considerations might eat away at the savings (we’ve known more than one retiree who was been stunned by HOA fees, for example) or make them less worthwhile.

As with any tax issue, it’s a good idea to speak to a qualified financial advisor and accountant about your particular situation and the most appropriate course of action for your family.

The bigger picture: Stay strategic

The Propositions 60/90 tax break is one example of an area in which older workers and retirees can benefit from some strategic thinking. It can also apply to things like health savings accounts, other tax deductions, and even charitable giving.

As you develop your own financial plan for retirement, we recommend speaking with a financial advisor who can help you stay on top of the key issues and make a plan that can help you reach your financial and personal goals. Whether it’s property tax or a plan for predictable retirement income, it’s never too late to start strategizing!

 

Getting ready to retire?  

If so, you might benefit from reading through our free guide. It will help you walk through some of the most important home factors and considerations in tax planning – so that you can identify your goals, start making a plan, and take the next steps towards retiring with confidence.


Download Your Guide and get started today!

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You Home is a Tax Haven

But What About Tax Reform?

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Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

Important Disclosures

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Neither diversification nor asset allocation can ensure a profit or prevention of loss in times of declining values. United Planners does not render tax advice.

Securities and advisory services offered through United Planners Financial Services, member FINRA, SIPC. Pasquale Vitucci, CA Insurance Lic. # 0758212, is an Endorsed Agent of Vitucci & Associates Insurance Services CA Insurance Lic. # 0I06319. Vitucci & Associates Insurance Services and United Planners are separate and unrelated companies.

This page contains links to third-party company websites. By selecting a link, you will be leaving our website and launching a new browser window. These links are provided for informational purposes only and should not be viewed as an endorsement, sponsorship, solicitation or other affiliation with respect to any third parties. We are not making any recommendations or providing any advice on securities in particular or investments in general. Neither Vitucci & Associates nor United Planners Financial Services have reviewed the content of, and are not responsible for, the information or the results of the third-party websites.

Further Reading

Frequently asked questions about 60/90: http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm

Guide to 60/90: https://www.besmartee.com/blog/california-proposition-60-and-90-your-complete-guide

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