Property tax hacks in California

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hammond
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Property tax hacks in California

Post by hammond » Wed Mar 13, 2019 11:53 pm

https://youtu.be/fUAwxojCcaQ

I came across this video where the author claims to pay only ~5k in property tax every year in the Bay Area (HCOL area).
He did not specify how this is done and was slightly secretive about it as he thought it was a controversial subject.

Does anybody what are some of the hacks to lower property tax?

For some context, our house costs 2.5.mil in the Bay Area and we pay close to ~30k in property tax every year. I am not aware of deductions or hacks to lower this.

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baconavocado
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Re: Property tax hacks in California

Post by baconavocado » Thu Mar 14, 2019 12:06 am

If you look at property tax rolls, there are lots of people paying very low taxes on very high value properties. Most bought the properties before they appreciated in value, like many years ago or during a slump in the market, or they inherited them.

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Tyler Aspect
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Re: Property tax hacks in California

Post by Tyler Aspect » Thu Mar 14, 2019 12:09 am

Pay our taxes. :)
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quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Thu Mar 14, 2019 12:24 am

You probably can’t, at least not by much.

Things you might be able to do...

If the market has dropped, you can apply to have the property reassessed. In general, the assessed value, and hence the tax, goes up by 2% per year. If the actual value is less than the assessed value, get it reassessed, and the tax, at least temporarily, goes down. The 2% per year clock still keeps ticking, so when property values go back up, it will ratchet back up to where it would have been without the reassessment, but you might get a few years of lower taxes. When I’ve owned homes where his was possible, San Diego county automatically reassessed. I didn’t have to do anything. That was....a few...decades ago.

Sign a Mills Act contract. Get your home declared a historic home, and sign a contract saying that you will preserve its historic character, in exchange for a property tax reduction. Obviously not available to everyone.

If you’re a senior, you might be able to get exemptions on some of the additional taxes you are levied as part of your property tax bill. My understanding is that some of the property tax levys have senior exemptions in them, but they’re not automatic. You have to apply for them, sometimes every year, and the process appears to be really well hidden. I know this exists because I read an article about it a few years ago, but now that I might qualify, I can’t find anything about it.

There’s also prop 60 and 90, which give onece in a lifetime ways for seniors to downsize without their property taxes increasing.

And there are some programs for veterans, disabled vets, low income seniors, etc.

That’s all I can think of. There may be more, but if you’re not poor, disabled, a senior, or live in an old house, you probably don’t qualify.

quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Thu Mar 14, 2019 12:30 am

Okay, so adding on to my previous comment. I looked at the video. Your property tax is based on what you paid for your place, not what it’s worth now. My guess with him is he bought it the house 15-20 years ago, when it was cheaper. We pay about $3500, for a home that Zillow says is worth $1.2M, but we bought it in the 90’s for a lot less than that.

Rob1
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Re: Property tax hacks in California

Post by Rob1 » Thu Mar 14, 2019 1:32 am

quantAndHold wrote:
Thu Mar 14, 2019 12:30 am
Okay, so adding on to my previous comment. I looked at the video. Your property tax is based on what you paid for your place, not what it’s worth now. My guess with him is he bought it the house 15-20 years ago, when it was cheaper. We pay about $3500, for a home that Zillow says is worth $1.2M, but we bought it in the 90’s for a lot less than that.
It’s initially based on what you pay for a home, but it can be increased each year by an inflation factor not to exceed 2%.

crystalbank
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Re: Property tax hacks in California

Post by crystalbank » Thu Mar 14, 2019 1:36 am

I can only think of two things.

1. Move to a cheaper place.
2. Move out of CA.

phxjcc
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Re: Property tax hacks in California

Post by phxjcc » Thu Mar 14, 2019 12:31 pm

You can find a county that wants new residents and they will keep the taxes on your new place the same as on your old place.

Look up Prop 60 and 90 rules.

Our neighbors moved and did this.

This "its a secret" shtuff smells like a con/sales pitch.

mmmodem
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Re: Property tax hacks in California

Post by mmmodem » Thu Mar 14, 2019 12:40 pm

We have a million dollar home in CA and we pay about $6k in property taxes. There is no hack. Thank Prop 13 and ridiculous home prices. We bought it at $400k 8 years ago.

mrsbetsy
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Re: Property tax hacks in California

Post by mrsbetsy » Thu Mar 14, 2019 2:02 pm

mmmodem wrote:
Thu Mar 14, 2019 12:40 pm
We have a million dollar home in CA and we pay about $6k in property taxes. There is no hack. Thank Prop 13 and ridiculous home prices. We bought it at $400k 8 years ago.
We pay about 7K a year on our 1.4M house in the Bay Area. Thanks to Prop 13.

Eventually it'll catch up for you, too.

quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Thu Mar 14, 2019 2:12 pm

Rob1 wrote:
Thu Mar 14, 2019 1:32 am
quantAndHold wrote:
Thu Mar 14, 2019 12:30 am
Okay, so adding on to my previous comment. I looked at the video. Your property tax is based on what you paid for your place, not what it’s worth now. My guess with him is he bought it the house 15-20 years ago, when it was cheaper. We pay about $3500, for a home that Zillow says is worth $1.2M, but we bought it in the 90’s for a lot less than that.
It’s initially based on what you pay for a home, but it can be increased each year by an inflation factor not to exceed 2%.
Oh, yeah, it creeps up over the years, but the initial house price is the main factor. When we first bought, our tax was $2400, now it’s just under $4k. Our 89 year old neighbor, in a similar house, was paying $600. She bought it in the 60’s, for about $25k.

OP, the main “hack” is to just stay put. After a couple of decades, inflation will take care of your problem.

StandingRock
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Re: Property tax hacks in California

Post by StandingRock » Thu Mar 14, 2019 2:14 pm

mrsbetsy wrote:
Thu Mar 14, 2019 2:02 pm
mmmodem wrote:
Thu Mar 14, 2019 12:40 pm
We have a million dollar home in CA and we pay about $6k in property taxes. There is no hack. Thank Prop 13 and ridiculous home prices. We bought it at $400k 8 years ago.
We pay about 7K a year on our 1.4M house in the Bay Area. Thanks to Prop 13.

Eventually it'll catch up for you, too.
They will eventually adjust... 8 years sounds like you might be getting it soon. I don't know what Prop 13 is.

I don't know if this is included in the "property tax hacks" video or not, but for a rental property those taxes are an above the line deduction.

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Artsdoctor
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Re: Property tax hacks in California

Post by Artsdoctor » Thu Mar 14, 2019 2:19 pm

mrsbetsy wrote:
Thu Mar 14, 2019 2:02 pm
mmmodem wrote:
Thu Mar 14, 2019 12:40 pm
We have a million dollar home in CA and we pay about $6k in property taxes. There is no hack. Thank Prop 13 and ridiculous home prices. We bought it at $400k 8 years ago.
We pay about 7K a year on our 1.4M house in the Bay Area. Thanks to Prop 13.

Eventually it'll catch up for you, too.
It may not "catch up" with you if you "age in place." As stated earlier, there is a disincentive to move because the property is linked to the purchase price. There may be assessments for renovations along the way but if you stay in place, property taxes can be very reasonable. Our property taxes are less than 0.5% of the market value of the house--for now (our house was purchased > 20 years ago). If you move, you may be able to "take your property tax with you" if you move within the county or move to reciprocal counties, and fulfill other criteria. You can also pass on your house's property tax to your heirs (children or grandchildren) even though the cost basis has been reset. So I can easily see how someone could pay very, very little in property tax in California as a percentage of the house's market value given the "right" circumstances.

2015
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Re: Property tax hacks in California

Post by 2015 » Thu Mar 14, 2019 2:26 pm

phxjcc wrote:
Thu Mar 14, 2019 12:31 pm
You can find a county that wants new residents and they will keep the taxes on your new place the same as on your old place.

Look up Prop 60 and 90 rules.

Our neighbors moved and did this.

This "its a secret" shtuff smells like a con/sales pitch.
+1
I plan to use prop 90 to take my old property taxes to my new property. When I sold my place after 20 years, I saw that property taxes doubled for the new owners.

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unclescrooge
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Re: Property tax hacks in California

Post by unclescrooge » Thu Mar 14, 2019 2:28 pm

I bought a house for $1.3m, spent $400k rebuilding it.
It's now worth over $2.2m (based on a drive-by appraisal from over a year ago).

Property tax is based on the $1.3m purchase price, saving me nearly $1000/month.

Regarding the guy in the video, he probably inherited the low tax base on the property. Or he bought at the bottom of the market in a transaction that was not arms length and used that to get a low tax base.

quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Thu Mar 14, 2019 2:38 pm

phxjcc wrote:
Thu Mar 14, 2019 12:31 pm
You can find a county that wants new residents and they will keep the taxes on your new place the same as on your old place.

Look up Prop 60 and 90 rules.

Our neighbors moved and did this.

This "its a secret" shtuff smells like a con/sales pitch.
Prop 60/90 is good to know about, and I’m keeping it up my sleeve for when we’re ready to downsize. But you only get to use it once in a lifetime, and it’s only for people 55 and over, and really only useful to people who’ve owned their place long enough that their taxes are low by current standards. Essentially, you’re transferring your already low taxes from one place to another.

stan1
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Re: Property tax hacks in California

Post by stan1 » Thu Mar 14, 2019 2:44 pm

quantAndHold wrote:
Thu Mar 14, 2019 12:24 am

Sign a Mills Act contract. Get your home declared a historic home, and sign a contract saying that you will preserve its historic character, in exchange for a property tax reduction. Obviously not available to everyone.
I'd argue that Mills Act is for the most part already priced into the sales prices in these neighborhoods. Eligible houses are seldom cheap. A friend of mine had a business researching the pedigrees and building supporting data packages for Mills Act exemptions. She would charge about $10-20K.

StandingRock
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Re: Property tax hacks in California

Post by StandingRock » Thu Mar 14, 2019 2:45 pm

quantAndHold wrote:
Thu Mar 14, 2019 2:38 pm
phxjcc wrote:
Thu Mar 14, 2019 12:31 pm
You can find a county that wants new residents and they will keep the taxes on your new place the same as on your old place.

Look up Prop 60 and 90 rules.

Our neighbors moved and did this.

This "its a secret" shtuff smells like a con/sales pitch.
Prop 60/90 is good to know about, and I’m keeping it up my sleeve for when we’re ready to downsize. But you only get to use it once in a lifetime, and it’s only for people 55 and over, and really only useful to people who’ve owned their place long enough that their taxes are low by current standards. Essentially, you’re transferring your already low taxes from one place to another.
This sounds like an attempt to prevent people from leaving. Hotel California, baby.

libralibra
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Re: Property tax hacks in California

Post by libralibra » Thu Mar 14, 2019 2:51 pm

post removed
Last edited by libralibra on Mon May 27, 2019 11:28 pm, edited 1 time in total.

deltaneutral83
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Re: Property tax hacks in California

Post by deltaneutral83 » Thu Mar 14, 2019 2:55 pm

hammond wrote:
Wed Mar 13, 2019 11:53 pm
For some context, our house costs 2.5.mil in the Bay Area and we pay close to ~30k in property tax every year. I am not aware of deductions or hacks to lower this.
I am not at all familiar with CA property tax laws but $30,000 on $2,500,000 is still 1.2% which is very reasonable unless I'm missing something. I have a buddy in Connecticut and....

DrGoogle2017
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Re: Property tax hacks in California

Post by DrGoogle2017 » Thu Mar 14, 2019 3:06 pm

It’s possible, I refused to do a lot of upgrade when I bought my house. Checking around the neighborhood, I seem to have the lowest rate.

quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Thu Mar 14, 2019 3:10 pm

stan1 wrote:
Thu Mar 14, 2019 2:44 pm
quantAndHold wrote:
Thu Mar 14, 2019 12:24 am

Sign a Mills Act contract. Get your home declared a historic home, and sign a contract saying that you will preserve its historic character, in exchange for a property tax reduction. Obviously not available to everyone.
I'd argue that Mills Act is for the most part already priced into the sales prices in these neighborhoods. Eligible houses are seldom cheap. A friend of mine had a business researching the pedigrees and building supporting data packages for Mills Act exemptions. She would charge about $10-20K.
We have a Mills Act contract. A house that already has a historic designation will have the benefits factored into the price, but buying a house because it might qualify for the Mills Act is an expensive crapshoot, and the lower property taxes are probably not factored into the sales price. Historic homes, though, with or without designation, tend to be desirable houses in desirable neighborhoods, and are priced accordingly.

Interestingly, back in the 90’s when we bought it, historic homes weren’t really a thing most people wanted. We bought an old house in a “transitional neighborhood,” because it’s what we could afford. Then later on, realized we had one of the best examples in Southern California of a particular unusual historical architectural style.

In our case, I did the historical research myself, guided by a neighbor who does Mills Act applications for a living. Then I hired her to take the research and write the application. It took a ton of time and cost $2k. The work was fascinating, though. I’ve considered doing historical consulting myself.

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Sandtrap
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Re: Property tax hacks in California

Post by Sandtrap » Thu Mar 14, 2019 3:18 pm

hammond wrote:
Wed Mar 13, 2019 11:53 pm
https://youtu.be/fUAwxojCcaQ

I came across this video where the author claims to pay only ~5k in property tax every year in the Bay Area (HCOL area).
He did not specify how this is done and was slightly secretive about it as he thought it was a controversial subject.

Does anybody what are some of the hacks to lower property tax?

For some context, our house costs 2.5.mil in the Bay Area and we pay close to ~30k in property tax every year. I am not aware of deductions or hacks to lower this.
Always, first, consider the source of the information.
"Beat The Bush", youtube channel, links to Amazon.com products, website online presence. Very creative young fellow. Lot's of subscribers and millions of views on a broad range of topics.
Similar to a book on a subject.
Consider the source.
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inbox788
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Re: Property tax hacks in California

Post by inbox788 » Thu Mar 14, 2019 3:26 pm

He's trying to make it as a Youtuber, so writing off a lot of business expenses. If half the house is being used for business, the business is paying half the property tax. His accounting is creative. Using some of the same logic, he buys his house for $800k and sells it for $813k, he can live for free.

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unclescrooge
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Re: Property tax hacks in California

Post by unclescrooge » Thu Mar 14, 2019 3:45 pm

quantAndHold wrote:
Thu Mar 14, 2019 3:10 pm
stan1 wrote:
Thu Mar 14, 2019 2:44 pm
quantAndHold wrote:
Thu Mar 14, 2019 12:24 am

Sign a Mills Act contract. Get your home declared a historic home, and sign a contract saying that you will preserve its historic character, in exchange for a property tax reduction. Obviously not available to everyone.
I'd argue that Mills Act is for the most part already priced into the sales prices in these neighborhoods. Eligible houses are seldom cheap. A friend of mine had a business researching the pedigrees and building supporting data packages for Mills Act exemptions. She would charge about $10-20K.
We have a Mills Act contract. A house that already has a historic designation will have the benefits factored into the price, but buying a house because it might qualify for the Mills Act is an expensive crapshoot, and the lower property taxes are probably not factored into the sales price. Historic homes, though, with or without designation, tend to be desirable houses in desirable neighborhoods, and are priced accordingly.

Interestingly, back in the 90’s when we bought it, historic homes weren’t really a thing most people wanted. We bought an old house in a “transitional neighborhood,” because it’s what we could afford. Then later on, realized we had one of the best examples in Southern California of a particular unusual historical architectural style.

In our case, I did the historical research myself, guided by a neighbor who does Mills Act applications for a living. Then I hired her to take the research and write the application. It took a ton of time and cost $2k. The work was fascinating, though. I’ve considered doing historical consulting myself.
I know someone who lives in a historic craftsman home in a historic neighborhood in Los Angeles. Their 4,800 sqft house is gorgeous (as is the entire street). Their house is probably worth $3.5 million but their property tax is only $10k, due to prop 13, and not due to the Mills Act.

Would the Mills Act reduce the property further than Prop 13?

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Artsdoctor
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Re: Property tax hacks in California

Post by Artsdoctor » Thu Mar 14, 2019 3:51 pm

StandingRock wrote:
Thu Mar 14, 2019 2:45 pm
quantAndHold wrote:
Thu Mar 14, 2019 2:38 pm
phxjcc wrote:
Thu Mar 14, 2019 12:31 pm
You can find a county that wants new residents and they will keep the taxes on your new place the same as on your old place.

Look up Prop 60 and 90 rules.

Our neighbors moved and did this.

This "its a secret" shtuff smells like a con/sales pitch.
Prop 60/90 is good to know about, and I’m keeping it up my sleeve for when we’re ready to downsize. But you only get to use it once in a lifetime, and it’s only for people 55 and over, and really only useful to people who’ve owned their place long enough that their taxes are low by current standards. Essentially, you’re transferring your already low taxes from one place to another.
This sounds like an attempt to prevent people from leaving. Hotel California, baby.
You have no idea! It's the golden hand cuffs phenomenon. The high cost of real estate in the coastal areas of California can make financial planning mind-boggling and fly in the face of what would be consider "reasonable". Consider this:

It's 2019. You bought your house in 1983 for $400,000 and it's now worth $4,000,000. Your cost basis might be $1,400,000 so your capital gain is $2,600,000. As a couple you're entitled to a $500,000 exclusion so you're going to pay tax on $2,100,000 in the year of your sale. That will put you in the highest federal capital gain bracket, will subject you to NIIT, and put you in the highest state income bracket. So you'll essentially pay $700,000 in tax. Boo hoo, right?

But then, your property tax all along was based on the purchase price of $400,000. The state property tax is 1% of the purchase price, you add your local taxes, you increase that amount by only 2% per year and you add in some renovations. But I doubt you'd be paying anything substantial in property tax--all the while your neighbor who bought a similar house might be paying $50,000 in the first year.

So, you decide that you can't move because you find paying $700,000 in taxes just crazy. You decide to leave your house to your kids. They get the stepped up basis (say, $4,000,000) but they maintain your absurdly low property tax. And the estate tax mirrors the federal estate tax so it's not likely your heirs will need to pay anything.

So yes, some people will jump through a lot of hoops not to move once they do the math.

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snackdog
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Re: Property tax hacks in California

Post by snackdog » Thu Mar 14, 2019 4:01 pm

You do a 1031 exchange into a home in another location with equally low property taxes, or if you are lucky and have multiple Calif properties you 1031 exchange them into multiple properties in cheaper locations which will perhaps cash flow better as rentals.

Teague
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Re: Property tax hacks in California

Post by Teague » Thu Mar 14, 2019 4:12 pm

snackdog wrote:
Thu Mar 14, 2019 4:01 pm
You do a 1031 exchange into a home in another location with equally low property taxes, or if you are lucky and have multiple Calif properties you 1031 exchange them into multiple properties in cheaper locations which will perhaps cash flow better as rentals.
From IRC sec 1031:
“No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of like-kind which is to be held either for productive use in a trade or business or for investment.”

So that's for business properties. How can it apply to a personal residence?
Semper Augustus

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unclescrooge
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Re: Property tax hacks in California

Post by unclescrooge » Thu Mar 14, 2019 4:25 pm

Teague wrote:
Thu Mar 14, 2019 4:12 pm
snackdog wrote:
Thu Mar 14, 2019 4:01 pm
You do a 1031 exchange into a home in another location with equally low property taxes, or if you are lucky and have multiple Calif properties you 1031 exchange them into multiple properties in cheaper locations which will perhaps cash flow better as rentals.
From IRC sec 1031:
“No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of like-kind which is to be held either for productive use in a trade or business or for investment.”

So that's for business properties. How can it apply to a personal residence?
I guess you could rent out the house for a couple of years.

Teague
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Re: Property tax hacks in California

Post by Teague » Thu Mar 14, 2019 5:46 pm

unclescrooge wrote:
Thu Mar 14, 2019 4:25 pm
Teague wrote:
Thu Mar 14, 2019 4:12 pm
snackdog wrote:
Thu Mar 14, 2019 4:01 pm
You do a 1031 exchange into a home in another location with equally low property taxes, or if you are lucky and have multiple Calif properties you 1031 exchange them into multiple properties in cheaper locations which will perhaps cash flow better as rentals.
From IRC sec 1031:
“No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of like-kind which is to be held either for productive use in a trade or business or for investment.”

So that's for business properties. How can it apply to a personal residence?
I guess you could rent out the house for a couple of years.
Ok I guess, as long as one doesn't need to actually live in place they're they're "moving to" for a couple of years. But even if that were the case, it looks like each exchanged property needs to be part of a commercial enterprise, both the old and new one. I was under the impression this thread was asking about typical family residences. Or maybe I misunderstood.
Semper Augustus

ianferrel
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Re: Property tax hacks in California

Post by ianferrel » Thu Mar 14, 2019 6:26 pm

StandingRock wrote:
Thu Mar 14, 2019 2:14 pm
They will eventually adjust... 8 years sounds like you might be getting it soon. I don't know what Prop 13 is.
They won't. That's what Prop 13 is. Your property taxes are capped at 2% growth from the purchase price. Since 2% growth is lower than inflation, over the long term your property taxes go down in real terms.

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whodidntante
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Re: Property tax hacks in California

Post by whodidntante » Thu Mar 14, 2019 6:40 pm

I challenge my assessment every few years. I have no problem paying my share of tax, but I'm not going to leave a tip.

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baconavocado
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Re: Property tax hacks in California

Post by baconavocado » Thu Mar 14, 2019 6:52 pm

Artsdoctor wrote:
Thu Mar 14, 2019 3:51 pm

You have no idea! It's the golden hand cuffs phenomenon. The high cost of real estate in the coastal areas of California can make financial planning mind-boggling and fly in the face of what would be consider "reasonable". Consider this:

It's 2019. You bought your house in 1983 for $400,000 and it's now worth $4,000,000. Your cost basis might be $1,400,000 so your capital gain is $2,600,000. As a couple you're entitled to a $500,000 exclusion so you're going to pay tax on $2,100,000 in the year of your sale. That will put you in the highest federal capital gain bracket, will subject you to NIIT, and put you in the highest state income bracket. So you'll essentially pay $700,000 in tax. Boo hoo, right?

But then, your property tax all along was based on the purchase price of $400,000. The state property tax is 1% of the purchase price, you add your local taxes, you increase that amount by only 2% per year and you add in some renovations. But I doubt you'd be paying anything substantial in property tax--all the while your neighbor who bought a similar house might be paying $50,000 in the first year.

So, you decide that you can't move because you find paying $700,000 in taxes just crazy. You decide to leave your house to your kids. They get the stepped up basis (say, $4,000,000) but they maintain your absurdly low property tax. And the estate tax mirrors the federal estate tax so it's not likely your heirs will need to pay anything.

So yes, some people will jump through a lot of hoops not to move once they do the math.
In the meantime YOU'RE STUCK in one of the most beautiful places on the planet.

Seriously though, I think there are problems with Prop 13. I hope someone figures out a way to fix them someday. Sounds like there's momentum building to do away with the inheritance provision.

Thesaints
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Re: Property tax hacks in California

Post by Thesaints » Thu Mar 14, 2019 7:05 pm

Prop 13 extension to children/grandchildren will go, I'd say sooner rather than later.
On the other hand, how did you increase your original 400k cost basis to 1.4M ? For 1M you can probably rebuild the house.

quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Thu Mar 14, 2019 7:07 pm

unclescrooge wrote:
Thu Mar 14, 2019 3:45 pm
quantAndHold wrote:
Thu Mar 14, 2019 3:10 pm
stan1 wrote:
Thu Mar 14, 2019 2:44 pm
quantAndHold wrote:
Thu Mar 14, 2019 12:24 am

Sign a Mills Act contract. Get your home declared a historic home, and sign a contract saying that you will preserve its historic character, in exchange for a property tax reduction. Obviously not available to everyone.
I'd argue that Mills Act is for the most part already priced into the sales prices in these neighborhoods. Eligible houses are seldom cheap. A friend of mine had a business researching the pedigrees and building supporting data packages for Mills Act exemptions. She would charge about $10-20K.
We have a Mills Act contract. A house that already has a historic designation will have the benefits factored into the price, but buying a house because it might qualify for the Mills Act is an expensive crapshoot, and the lower property taxes are probably not factored into the sales price. Historic homes, though, with or without designation, tend to be desirable houses in desirable neighborhoods, and are priced accordingly.

Interestingly, back in the 90’s when we bought it, historic homes weren’t really a thing most people wanted. We bought an old house in a “transitional neighborhood,” because it’s what we could afford. Then later on, realized we had one of the best examples in Southern California of a particular unusual historical architectural style.

In our case, I did the historical research myself, guided by a neighbor who does Mills Act applications for a living. Then I hired her to take the research and write the application. It took a ton of time and cost $2k. The work was fascinating, though. I’ve considered doing historical consulting myself.
I know someone who lives in a historic craftsman home in a historic neighborhood in Los Angeles. Their 4,800 sqft house is gorgeous (as is the entire street). Their house is probably worth $3.5 million but their property tax is only $10k, due to prop 13, and not due to the Mills Act.

Would the Mills Act reduce the property further than Prop 13?
Depends. For us it a wash, since we’re in a similar situation as your friend. But for someone who has just bought a $3.5M place, normal property taxes would be $35-45k. Mills Act taxes are based on a funky formula related to how much the place would rent for, and for a place like that, would probably be closer to $10k.

quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Thu Mar 14, 2019 7:17 pm

Thesaints wrote:
Thu Mar 14, 2019 7:05 pm
Prop 13 extension to children/grandchildren will go, I'd say sooner rather than later.
On the other hand, how did you increase your original 400k cost basis to 1.4M ? For 1M you can probably rebuild the house.
There are a *lot* of places in my neighborhood that have been in the same family for 3 generations. Many of them started out life as 800 sq ft 2 bed 1 bath bungalows. Now the “original” house is 2500 sq ft, and there’s a 800 sq ft granny flat in the back. And they’re paying $1200 in property taxes.

Agree that the inheritance thing needs to go. My heirs will deal with it just fine.

Thesaints
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Re: Property tax hacks in California

Post by Thesaints » Thu Mar 14, 2019 7:37 pm

quantAndHold wrote:
Thu Mar 14, 2019 7:17 pm
Thesaints wrote:
Thu Mar 14, 2019 7:05 pm
Prop 13 extension to children/grandchildren will go, I'd say sooner rather than later.
On the other hand, how did you increase your original 400k cost basis to 1.4M ? For 1M you can probably rebuild the house.
There are a *lot* of places in my neighborhood that have been in the same family for 3 generations. Many of them started out life as 800 sq ft 2 bed 1 bath bungalows. Now the “original” house is 2500 sq ft, and there’s a 800 sq ft granny flat in the back. And they’re paying $1200 in property taxes.

Agree that the inheritance thing needs to go. My heirs will deal with it just fine.
I see. In my 'hood, people are tar & feathered for trying to open an extra window. :)

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unclescrooge
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Re: Property tax hacks in California

Post by unclescrooge » Thu Mar 14, 2019 8:55 pm

Teague wrote:
Thu Mar 14, 2019 5:46 pm
unclescrooge wrote:
Thu Mar 14, 2019 4:25 pm
Teague wrote:
Thu Mar 14, 2019 4:12 pm
snackdog wrote:
Thu Mar 14, 2019 4:01 pm
You do a 1031 exchange into a home in another location with equally low property taxes, or if you are lucky and have multiple Calif properties you 1031 exchange them into multiple properties in cheaper locations which will perhaps cash flow better as rentals.
From IRC sec 1031:
“No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of like-kind which is to be held either for productive use in a trade or business or for investment.”

So that's for business properties. How can it apply to a personal residence?
I guess you could rent out the house for a couple of years.
Ok I guess, as long as one doesn't need to actually live in place they're they're "moving to" for a couple of years. But even if that were the case, it looks like each exchanged property needs to be part of a commercial enterprise, both the old and new one. I was under the impression this thread was asking about typical family residences. Or maybe I misunderstood.
You can do 1031s on single family residences.

And also on livestock, so long as they are of the same sex. 😂😂

NorCalDad
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Re: Property tax hacks in California

Post by NorCalDad » Fri Mar 15, 2019 8:28 am

baconavocado wrote:
Thu Mar 14, 2019 6:52 pm
In the meantime YOU'RE STUCK in one of the most beautiful places on the planet.

Seriously though, I think there are problems with Prop 13. I hope someone figures out a way to fix them someday. Sounds like there's momentum building to do away with the inheritance provision.
Sentiment is definitely changing, though Prop. 13 has been the third rail of politics in California. Voters last year rejected Prop. 5, which would have expanded those Prop. 60/90 rules to moves anywhere in California instead of just within the handful of counties that allow it. Consider that Prop. 90 had nearly 70% support in 1988, while Prop. 5 failed badly three decades later with only 40% support.

On that comment comparing Connecticut to California, it's generally the case that we have lower property taxes as a percentage of home value than East Coast states, but higher income and sales taxes.

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Artsdoctor
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Re: Property tax hacks in California

Post by Artsdoctor » Fri Mar 15, 2019 10:20 am

Thesaints wrote:
Thu Mar 14, 2019 7:05 pm
Prop 13 extension to children/grandchildren will go, I'd say sooner rather than later.
On the other hand, how did you increase your original 400k cost basis to 1.4M ? For 1M you can probably rebuild the house.
My example was just an illustration using round numbers. However, I've been surprised at how much "stuff" you can do to a house in 20-30 years. Our house is nearly 70 years old and we've renovated the kitchen, two bathrooms, two bedrooms, opened up the living room, added a library, put a new roof on, changed the entire outside space, reconfigured the pool, reconfigured all of the drainage system including putting a lot of drains in place which never existed, and somehow managed to avoid bankruptcy in the process. Those receipts are so important that I've uploaded them to the cloud AND keep them in a safe deposit box!

And I agree with the likelihood that the inheritance issue will be changed to something else. But for now, it's created an interesting estate planning maneuver.

DrGoogle2017
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Re: Property tax hacks in California

Post by DrGoogle2017 » Fri Mar 15, 2019 10:24 am

I haven’t put a dime in our house, unless you mean money for hardscape, but we did softscape ourselves. House prices just go up even better than the SP500, that’s without leveraging, with leveraging, it’s even more amazing.

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Re: Property tax hacks in California

Post by mervinj7 » Fri Mar 15, 2019 10:52 am

Since there's some confusion regarding Prop 13, here's some real examples. I just randomly picked a house on Redfin that wasn't sold in the last 5 years. This 4 Bed, 2 Bath, 1400 sq ft house in San Jose is currently worth $1.35M. If someone bought that house today, their new property tax would be $1.35M*1.26% + $1.4k= $18,400 per year.

https://www.redfin.com/CA/Campbell/3955 ... ic-records

However, the current owners bought their house so long ago that the accessed value is only $73k. So their property tax is only $73k*1.26%+$1.4k = $2300 which is just 1/8th of what a new owner would pay. To make things even crazier, houses like this are often owned by the grandchildren of the original owners and then rented out (no mortgage+extremely low property taxes=profit).

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Re: Property tax hacks in California

Post by seed4great » Fri Mar 15, 2019 12:17 pm

Somehow nobody mentioned another part of Prop 13, in particular 1% cap:
Proposition 13 capped, with limited exceptions, ad valorem property tax rates at one percent of full cash value at the time of acquisition.
I wonder how anyone could pay $30K property tax for the home worth $2.5M, like topic starter hammond does?
The greatest lesson in life is to know that even fools are right sometimes.

2015
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Re: Property tax hacks in California

Post by 2015 » Fri Mar 15, 2019 12:24 pm

quantAndHold wrote:
Thu Mar 14, 2019 2:38 pm
phxjcc wrote:
Thu Mar 14, 2019 12:31 pm
You can find a county that wants new residents and they will keep the taxes on your new place the same as on your old place.

Look up Prop 60 and 90 rules.

Our neighbors moved and did this.

This "its a secret" shtuff smells like a con/sales pitch.
Prop 60/90 is good to know about, and I’m keeping it up my sleeve for when we’re ready to downsize. But you only get to use it once in a lifetime, and it’s only for people 55 and over, and really only useful to people who’ve owned their place long enough that their taxes are low by current standards. Essentially, you’re transferring your already low taxes from one place to another.
I've benefited from exactly this scenario in transferring lower property taxes using Prop 90 this year.

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Re: Property tax hacks in California

Post by mervinj7 » Fri Mar 15, 2019 12:35 pm

seed4great wrote:
Fri Mar 15, 2019 12:17 pm
Somehow nobody mentioned another part of Prop 13, in particular 1% cap:
Proposition 13 capped, with limited exceptions, ad valorem property tax rates at one percent of full cash value at the time of acquisition.
I wonder how anyone could pay $30K property tax for the home worth $2.5M, like topic starter hammond does?
1% is the general levy. On top of that, there can be voter-approved levies and special assessments.

https://lao.ca.gov/reports/2012/tax/pro ... 12912.aspx

Here's an example of a home that sold for $2.4M in Cupertino which has a property tax rate of 1.16%. The previous owners paid $1,808 in property tax in 2016 on a accessed value of $114k. In 2018, the new owners paid $28,841 or $2.4M*1.16%+$766.

https://www.redfin.com/CA/Cupertino/109 ... ty-history
Current Taxes: https://payments.sccgov.org/propertytax/Secured

quantAndHold
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Re: Property tax hacks in California

Post by quantAndHold » Fri Mar 15, 2019 1:32 pm

mervinj7 wrote:
Fri Mar 15, 2019 12:35 pm
seed4great wrote:
Fri Mar 15, 2019 12:17 pm
Somehow nobody mentioned another part of Prop 13, in particular 1% cap:
Proposition 13 capped, with limited exceptions, ad valorem property tax rates at one percent of full cash value at the time of acquisition.
I wonder how anyone could pay $30K property tax for the home worth $2.5M, like topic starter hammond does?
1% is the general levy. On top of that, there can be voter-approved levies and special assessments.

https://lao.ca.gov/reports/2012/tax/pro ... 12912.aspx

Here's an example of a home that sold for $2.4M in Cupertino which has a property tax rate of 1.16%. The previous owners paid $1,808 in property tax in 2016 on a accessed value of $114k. In 2018, the new owners paid $28,841 or $2.4M*1.16%+$766.

https://www.redfin.com/CA/Cupertino/109 ... ty-history
Current Taxes: https://payments.sccgov.org/propertytax/Secured
The Bay Area, in particular, has a lot of those voter approved levies. Southern California is better in that respect.

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unclescrooge
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Re: Property tax hacks in California

Post by unclescrooge » Fri Mar 15, 2019 1:54 pm

Artsdoctor wrote:
Fri Mar 15, 2019 10:20 am
Thesaints wrote:
Thu Mar 14, 2019 7:05 pm
Prop 13 extension to children/grandchildren will go, I'd say sooner rather than later.
On the other hand, how did you increase your original 400k cost basis to 1.4M ? For 1M you can probably rebuild the house.
My example was just an illustration using round numbers. However, I've been surprised at how much "stuff" you can do to a house in 20-30 years. Our house is nearly 70 years old and we've renovated the kitchen, two bathrooms, two bedrooms, opened up the living room, added a library, put a new roof on, changed the entire outside space, reconfigured the pool, reconfigured all of the drainage system including putting a lot of drains in place which never existed, and somehow managed to avoid bankruptcy in the process. Those receipts are so important that I've uploaded them to the cloud AND keep them in a safe deposit box!

And I agree with the likelihood that the inheritance issue will be changed to something else. But for now, it's created an interesting estate planning maneuver.
I bought a built in 1969 in 2016 and had to essentially rebuild the entire thing. If you don't do basic maintenance/upgrades song the way, someone will have to spend a lot more later on. This will be reflected in the resell price, so it's often cheaper to spend as you go.

z91
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Re: Property tax hacks in California

Post by z91 » Fri Mar 15, 2019 3:20 pm

Prop 13 is where it's at. 2.5M must be a great neighborhood/school district.

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Re: Property tax hacks in California

Post by LadyGeek » Fri Mar 15, 2019 6:10 pm

I removed an off-topic post and reply complaining about CA tax policy. As a reminder, see: Non-actionable (Trolling) Topics
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Ron Ronnerson
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Re: Property tax hacks in California

Post by Ron Ronnerson » Sat Mar 16, 2019 10:15 am

quantAndHold wrote:
Fri Mar 15, 2019 1:32 pm
mervinj7 wrote:
Fri Mar 15, 2019 12:35 pm
seed4great wrote:
Fri Mar 15, 2019 12:17 pm
Somehow nobody mentioned another part of Prop 13, in particular 1% cap:
Proposition 13 capped, with limited exceptions, ad valorem property tax rates at one percent of full cash value at the time of acquisition.
I wonder how anyone could pay $30K property tax for the home worth $2.5M, like topic starter hammond does?
1% is the general levy. On top of that, there can be voter-approved levies and special assessments.

https://lao.ca.gov/reports/2012/tax/pro ... 12912.aspx

Here's an example of a home that sold for $2.4M in Cupertino which has a property tax rate of 1.16%. The previous owners paid $1,808 in property tax in 2016 on a accessed value of $114k. In 2018, the new owners paid $28,841 or $2.4M*1.16%+$766.

https://www.redfin.com/CA/Cupertino/109 ... ty-history
Current Taxes: https://payments.sccgov.org/propertytax/Secured
The Bay Area, in particular, has a lot of those voter approved levies. Southern California is better in that respect.
I can vouch for that. My house in the Bay Area is assessed at $566k and our property taxes are $9,900. It comes to a rate of about 1.75%. The special assessments definitely add up. My strategy is to stay in our home for the long term. Some of the special assessments are set to eventually go away and inflation is outpacing the annual property tax increases. This approach (of not moving) is not really a "hack" but does slowly helps ease the burden. By not moving, the transaction costs of buying & selling a home, moving, furnishing, etc. are eliminated too. Those things aren't cheap when you're talking about coastal California. So it's good that one can avoid (or at least minimize) these expenses by staying put.

We have found a way to "hack" income taxes (and qualify for government benefits) that are related to keeping housing costs in check but I don't want to derail the discussion since your question focuses on property taxes. I just wanted to mention that different things are often connected. If you can keep housing costs under control in California, other pieces can fall into place nicely.

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