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Senior Citizen’s Replacement Dwelling Benefit – Proposition 60 and 90
Parent and Childs Transfers – Proposition 58
The IRS Wants You to Own a Home – by Julie Sturgeon
Septic Regulations Update
The Tax Advantages of Owning A Home - by Gary E. Condie, C.P.A.
Foreclosure Process
Property Taxes
Proposition 60 and 90
(Senior Citizen’s Replacement Dwelling Benefit)
Propositions 60 and 90 are constitutional initiatives passed by California voters. They provide property tax relief for persons age 55 or older by preventing reassessment when a senior citizen sells his/her existing residence and purchases or constructs a replacement residence worth the same or less than the original residence. This allows the senior citizen to continue to pay approximately the same amount of annual property taxes as before. The Assessor transfers the factored base value of the original residence to the replacement residence. For legal reference, see Section 69.5 of the Revenue & Taxation Code, available at www.boetaxes.ca.gov/property/.
Both the replacement property and the original property, at the time of its sale, must have been eligible for the Homeowner’s Exemption or entitled to the Disabled Veteran’s Exemption. Besides being lesser in value, the replacement property must be purchased or newly constructed within two years, before or after, the sale of the original property.
Proposition 60 is available when both the original and replacement properties are located within the same county such as Los Angeles County. Proposition 90 is available when the original and replacement properties are located in different counties. However, not all counties have passed an ordinance allowing Proposition 90. Currently, those counties accepting Proposition 90 are Alameda, San Diego, Santa Clara, Los Angeles, Orange, San Mateo and Ventura. Please check with the local County Assessor before purchasing a replacement property, as this list is subject to change.
In general, a claim must be filed within three years of purchasing or completing new construction of the replacement property. Proposition 60/90 can only be granted one time. For additional information, call the Assessor’s Proposition Unit at (213) 893-1239.
Proposition 58
(Parent and Child Transfers)
Proposition 58 is a constitutional initiative passed by California voters. It provides property tax relief by preventing the reassessment (change in base year value) of real property when it is transferred between parents and children. The transfer may be a gift, an inheritance or a title change such as adding or deleting a name. In order to receive this exclusion, either party must file a claim. In general, the claim must be filed within three years of the date of transfer (date of the recorded document or date of death), but before the property is transferred or sold to a third party.
For additional information, call the Assessor’s Proposition Unit at (213) 893-1239.
The IRS Wants You to Own a Home
by Julie Sturgeon
To prove it, the government offers homeowners some of the biggest tax breaks available to individuals. For most people, owning a home effectively lowers their monthly tax outflow by a significant amount. Both the interest and real estate taxes you pay each year can be deducted if you itemize.
Congress even changed the laws in 1997 so that if you sell your home for a profit after you've lived in it for a few years, you can keep up to $500,000 tax free. The ruling opened a whole new tax strategy for taxpayers, in which they can truly look at their homes as potential profit centers.
There are some basic rules of interest deduction.
- For the IRS, a home can be a house, condominium, cooperative, mobile home, boat, recreational vehicle, or similar property that has sleeping, cooking and toilet facilities. Your home mortgage must be secured by your main home or your second home.
- You can’t deduct interest on a mortgage for a third home, a fourth home, and so on.
- You can take a tax deduction for the mortgage interest only if you are the primary borrower, you are legally obligated to pay the debt, and you actually make the payments.
- In the early years of your mortgage, almost all of your payments are interest. If you're in the 28% tax bracket and pay $10,000 in interest and taxes on your house, $2,800 of those payments will be reflected in your tax refund.
- When you buy, you also may have to pay points to your lender for a lower loan rate. Each point is equal to 1% of the loan's value and is treated as pre-paid interest by the tax code. So, you can deduct the amount in the year paid.
Some new home buyers also think they can deduct some of the other expenses they incur when they buy a home. You cannot deduct closing fees on your tax return only items relating to property taxes, interest and points.
Interest deductions on a first mortgage are straightforward. They apply to both first and second homes. You can deduct
all of the interest you pay on a first mortgage each year, up to a $1 million loan.
Consider this example: If you pay $1,400 a month on your mortgage and of that, $1,000 is in interest payments. If you're in the 28% tax bracket, that means the government is, in effect, helping you lower your monthly payments by $280. That's $3,360 off your yearly tax bill.
If you refinance your mortgage, you can take interest deductions only on the amount of principal you paid off. If the refinanced loan is greater than the paid-off amount, you can usually deduct the additional interest as a home equity loan, even though the entire principal came from one loan.
You can take up to $100,000 in interest on the principal of a second mortgage or homeowner's loan, provided that the value of the property exceeds the first and second combined. And unlike first mortgages, where deductions are available only if you use the money to buy, improve or build you home, you can use the second home equity loan for any purpose (except buying tax-free investments) and still deduct the interest.
If you borrow more than $100,000 and use the money to invest in taxable assets or to lend to your business, you can deduct interest on more than $100,000 as an investment or business-loan interest deduction.
For more information, you can reach us at (661) 251-6031 or www.cpasturgeon.com
After reviewing all of the comments during the Scoping Sessions of Summer 2005, the State Water Resources Control Board (SWRCB) Division of Water Quality (DWQ) staff posted their recommended changes to the draft regulations onto the AB 885 website. These recommendations were presented to the State Water Board by DWQ staff at the December 9th informational hearing in Sacramento and they have not yet been adopted.
The Draft Environmental Impact Report (EIR), draft regulations and draft statewide waiver are all slated to be available for public review as early as April 2006 but rumor has it that this effort may be unintentionally prolonged, as is typical in any report writing process. The CAR Septic Work Group will review the documents and will provide comments on and/or may even challenge the findings in the report, if need be, and therefore challenge the recommendations.
Click here to view the staff recommendations.
The Tax Advantages of Owning a Home
by Gary E. Condie, C.P.A.
One of the most common areas of questions put to a CPA has to do with the personal residence. Here is a summary of some of the most important things to keep in mind.
Your home can provide tax benefits from the time you buy it until the time you sell it. You can deduct the taxes and interest you pay on your home, and if you conduct business from your home, you may qualify for home office deductions. One of the most valuable benefits you may qualify for is tax-free income when you sell your home.
Home sale rules. You can exclude up to $250,000 of gain if you own and occupy a home as your principle residence for at least two of the five years preceding its sale. A married couple is entitled to exclude $500,000 if both spouses used the home as their main residence during this period. There are no age requirements for this exclusion, and you can use it every two years, if you otherwise qualify.
Periods of absence don't necessarily prevent you from qualifying for the exclusion. The two-year use rule doesn't mean you have to live there continuously, just that you live there for a total of two years within the five-year period.
Partial exclusion. Even if you don't meet the use and ownership tests, you may still qualify for a partial exclusion provided that you are moving due to a job relocation or for health reasons.
The partial gain exclusion also applies when you sell your home due to "unforeseen circumstances." Ever since the home sale rules passed in 1997, it's been somewhat unclear what constitutes an unforeseen circumstance. However, the IRS has issued further guidelines on this situation to help clarify.
Your principal residence. The term principal residence has a broader definition than you might think. Generally, a principal residence is the dwelling where you spend most of your time. Therefore, your weekend retreat doesn't qualify. But your residence can be a mobile home, a condo, or a houseboat, as long as it is your primary home.
Pitfalls. Watch out if you claim a home office deduction or if you rent out part of your home. If you use part of your home for business purposes more than three years in the five years prior to its sale, the sale will be treated as two sales, a business portion and a personal portion. You will not be able to exclude any gain on the business portion. So if you know you will be selling, it might be wise to give up that home office for a couple of years.
