Wednesday, Sept. 5, 2007 | Art and Ruby-Ann Rudnick wrung four decades out of their Northridge home in Los Angeles County after buying it for $33,750 in 1965.
But last year, with two grandchildren — a 2-and-a-half-year-old and a just-turned 5-year-old — acting as a magnet to the south, the Rudnicks migrated to Oceanside. They bought a house in the Ocean Hills neighborhood for $700,000 in April, exponentially increasing their property tax bill, at least theoretically.
In L.A., they paid property taxes for years based on the market value of their home when California’s Proposition 13 was passed in the late 1970s. Their taxable value increased when they added a few hundred square feet and a swimming pool. But even as their home’s value soared in the Southern California housing boom, their taxes remained tied — plus the inflation-based 2 percent increase every year — to what their house was worth when Jimmy Carter was president.
The move could’ve been a costly one, just from the taxes alone. In the new place, the Rudnicks would see their annual general property taxes — before the assessments for mosquito control, community colleges and other typical tax-bill inclusions — jump from $1,472 last year to potentially more than $7,000.
But under a popular property tax program, the Rudnicks have applied to keep their base value from their old house in Los Angeles. Two other propositions approved in the 1980s allow senior citizens to transfer their property tax base one time, as long as the new house costs no more than the sale price of their old house. Proposition 60, passed in 1986, allows for intra-county transfer: a homeowner can sell in Carlsbad and buy in La Mesa, transferring the base value. Proposition 90, passed two years later, allows for transfer from county to county, as long as both counties have agreed.
Without that program, the Rudnicks would still live in Northridge, facing a lengthy commute to take their Scripps Ranch grandchildren to Chuck E. Cheese, like Art Rudnick did last Thursday.
“We didn’t like the three-hour drive to see our grandchildren, to participate in some of the daily events, to baby-sit when necessary,” Art Rudnick said.
To be eligible for the benefits of these programs, homeowners must be 55 or older, and both the old house and the new house must be their primary residences. Both transactions must be completed in a two-year period. And depending when in that two years the homeowners purchase the new home, its value can’t exceed certain limits — in the first year, 105 percent of the old home’s value, and in the second year, 110 percent — that adjust for appreciation. Another proposition, 110, extends eligibility to disabled homeowners under the age of 55.
The popularity of the transfer program appears to wax and wane with the swells of the region’s housing market, said Jeff Olson, division chief for assessment services with the County Assessor’s Office. In 1991, just a few years after the propositions were approved, the Assessor’s Office granted 1,056 transfers. Five years later, in 1996, real estate was in a nosedive, and the office approved 703 such applications.
This decade, popularity spiked with the rollicking housing market, with 1,120 applications approved in 2001, and 1,335 in 2006. So far in 2007, the office has received 875 applications, Olson said.
Proposition 13 amended the California Constitution in 1978 to freeze assessed values for existing homes at 1975-1976 levels. Previously, homes were regularly reassessed and taxed based on the current market value, but spiking values threatened homeownership even for people who’d paid off their mortgages. The amendment, considered a citizen revolt against rising taxes, limited the tax rate to 1 percent of the assessed value, with a 2 percent raise allowed every year to account for inflation. So a house’s Prop. 13, original base value is its market value at the time of purchase, with those adjustments applied.
Proposition 60, then, allows homeowners to transfer that original base value to a new house within the same county. Proposition 90 extends that transfer to homes in two different counties, as long as the new county has adopted an ordinance to allow the transfer to take place. Those counties include Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura.
In an uncertain housing market statewide, some homeowners feel stuck in their Prop. 13 rates, worried that if they sell and buy a home somewhere else, they face a spike in property taxes at a time when they already feel financially pinched. Trying to look before they leap, many call Olson and his co-workers to ask for their blessing, and a promise that their old base valuation will count on their new house.
“What we tell them is we can’t guarantee them anything,” Olson said.
But that’s not the only bit of finagling between the office and applicants. Some ask if they can combine tax valuations with an elderly parent or another couple — if we pool our two houses’ value, can we buy a house worth twice as much and pay those low taxes? No, said Olson.
Others try to apply the program to residences — some even in other states — that aren’t actually where they live. Olson said he and his co-workers look at driver’s licenses and voter registration to figure out if the residence is primary.
But he’ll stop short of waiting with a video camera trained on your front door to see if you live there.
“No, we don’t go around stalking people — none of that,” he said.
Still others sell their old houses for a certain amount, then refund the buyers with cash for closing costs or extra upgrades, retaining an artificially high selling price. Olson said his office examines the transaction to get the actual market value — not just the price, which could be inflated by those incentives — for the old house. If it appeared the old house sold for $950,000, but the seller gave the buyer $50,000, the property tax transfer program would allow participants to find a home priced at or below $900,000, he said.
And Olson stresses that being approved for the transfer doesn’t necessarily mean a homeowner’s bill stays the same, just the assessed value. A homeowner who buys an $800,000 home would typically pay $8,000 in property taxes. If that homeowner qualified to transfer the previous home’s value, say, $200,000, that could mean a savings of $6,000 annually. But in cases where the new home is in a different school district, or is in a Mello-Roos area — a newly developed community impacted by special taxes to pay for roads, sewers and other services — the tax bill could include more expenses than the one for the old house.
In her work as a downtown San Diego Realtor, Sandra Melville said she’s surprised more of her clients don’t mention the tax-savings program.
“I really haven’t seen people transferring that often, especially people downsizing from homes into condos,” she said. “I’ve had very few people ask, and you can save an awful lot of money.”
But Sigmund Penn, a Realtor in North County who often deals with homeowners older than 55-years-old looking for these types of transactions, said current conditions in the housing market dictate that sellers wait longer and often must lower their asking prices to attract buyers.
“The problem now is that the seniors that are coming in, they can’t move in until they sell their houses,” he said. “That’s where the bottleneck is.”
Indeed, it took the Rudnicks nine months to sell their L.A. house. They leased their new house in Oceanside until they closed escrow on the L.A. one.
“It was a time,” Art Rudnick said. “It was very difficult. We were a little nervous.”
But with the old home sold, the new home bought, and the Prop. 90 application nearly through the assessor’s system, Rudnick said the transfer program made could make their retirement.
“We were very thankful,” he said. “Otherwise [the rate increase] might have kept us from doing this. That would’ve put us out of the ballpark.”