5: Portable Real Estate Tax Break
What it would do:
Allow older or disabled homeowners to take a portion of their lowered property tax base with them if they sell their home and move.
If you want to get into the weeds, here’s how it works: someone who buys a more expensive house would no longer be required to pay property taxes based on the full market price of the new home, as they would be now in many cases. Instead, the new taxable amount would only increase by the difference in market price between the new and old home.
Likewise, someone who moves to a less expensive house would actually see their property fall, dodging a higher property tax bill based on the full market rate of the new property. Instead, their assessed value would decline by the percentage difference in price between the new and old property.
What it would cost the government:
According to the Legislative Analyst’s Office, the state’s nonpartisan budgetary scorekeeper, local governments and school districts would lose $2 billion annually ($1 billion each) in foregone tax revenue. The state government would be required to backfill most of these costs, increasing state spending by a roughly equivalent amount. Some school districts in areas with high property taxes (roughly 5 percent across the state) would not be made entirely whole.
Why it is on the ballot:
Ever since voters passed Proposition 13 in 1978, property taxes have been calculated based on a home’s purchase price, rather than its current market value. That has kept property tax bills low for longtime homeowners despite skyrocketing real estate prices, but it also discourages people from moving, since property tax assessments are usually reset when you buy a new home. The California Association of Realtors, the folks in the business of selling homes, introduced this ballot measure last fall arguing that it will free up necessary inventory for young families by making it easier for empty nesters to downsize.
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Arguments in Favor:
Because many homeowners are penalized for moving, empty-nesters across the state are living in houses and large apartments that are bigger than their needs. There are plenty of first-time homebuyers and young families who could use all that extra space. Encouraging the first group to sell to the second is a win-win.
Of all the ways to address the state’s housing crisis, this is one of the least direct and most costly. This proposition won’t increase the housing supply by a single unit. It won’t subsidize rents. It merely switches homes from one group to another. Meanwhile, it costs the state an extra $1 billion while handing a massive tax break to some of the wealthiest people in the state.
California Association of Realtors
California Republican Party
California Chamber of Commerce
Howard Jarvis Taxpayers Association