Tax plan caps property deduction at $10,000, puts new limit on mortgage deduction

A sweeping overhaul of the tax code unveiled by House Republicans on Thursday would cap the deduction for property taxes at $10,000 and preserve the mortgage interest deduction only for existing mortgages and new purchases with loans of $500,000 or less. 

Those changes will amount to a tax increase on high-income taxpayers with pricey homes, even if they get lower income tax rates.

We must reverse the decline in California’s homeownership rate. For over 100 years Congress has incentivized home-ownership with the tax code; currently through the mortgage interest deduction.  Any effort at reforming the tax code should maintain and prioritize this incentive. The current proposal only pays lip service to incentivizing home-ownership. The proposed changes will result in only top earners itemizing their deductions. Therefore, the vast majority of people will no longer receive any tax incentive to purchase a home. So, while the proposal keeps the mortgage interest deduction, the incentive effect of the deduction for Americans to become homeowners disappears.

It weakens the mortgage interest deduction.

• It caps the mortgage interest deduction to the interest on a mortgage principle of $500,000.
• Homeowners would no longer be able to deduct the interest they pay on home equity loans.
• The deductibility would be eliminated for second homes and limited to loans on a family’s primary residence.

Families build wealth through home-ownership. According to a report by the Federal Reserve in 2016, homeowners amassed wealth at a greater rate than renters. Renters had a median net worth of $5,200 while homeowners had a net worth of $231,400.

Detailed Property Tax Component Breakdown Comparison 2015-2016

For buyers who are numbers driven, I did a detailed comparison of the property tax charges between sample houses in the 3 neighborhoods below:
1. Cupertino address with Cupertino schools
2. Santa Clara address with Cupertino schools
3. San Jose address with Berryessa schools

The overall property tax rates are very similar for all properties in Santa Clara County. The minor variations are mainly due to the differences in Special Assessments added on to the bills for different communities.



Some Special Assessments are based on mailing address CITY (not school district):

The house with Cupertino address (based on address city not school district) is charged special assessments for the following:

1a. Cupertino Sewer Services = $411.70
1b. Cupertino/Environment/Storm = $12
2. County Library CFD 2013-1 = $33.66

In comparison, the house with San Jose address pays:
1a. SJ Current Garbage Services = $384.84 (newly added to San Jose Property Tax bills)
1b. SJ Sewer/Sani/Storm = $499.44 (newly added to San Jose Property Tax bills)
2. San Jose Library Measure B of $31.34 (up from an Assessment of $27.80 back in 2011)

and the houses with San Jose + Santa Clara address (but not the house with Cupertino address) pay:
1. SCCOSA ASMT DIST 1 assessment of $12 (same as in 2011) +
2. SCCOSA Measure Q of $24.00 (newer charge that was not present in 2011).

Some Special Assessments are based on SCHOOL DISTRICT (not mailing address CITY):  

For instance, regardless of address, homes in the Cupertino Union School District (CUSD) and Fremont Union High School District (FUHSD) pay CUSD Measure A of $250 (up from Parcel Tax of $125 in 2011) and FUHSD Measure B of $98 (same as Parcel Tax of $98 in 2011). In comparison, homes in the Berryessa School District (BSD) only have to pay the Berryessa School District Measure K of $79 (same as Parcel Tax $79 in 2011).


The Santa Clara Valley Water District (SCVWD) charges:
1. SCVWD Safe, Clean Water = $59.24 fixed for all properties
2. SCVWD FLOOD
    a) North Central = $13.18 for Cupertino and Santa Clara
    b) East = $20.92 for Berryessa neighborhood of San Jose

Mosquito-Vector charges the same for all 3 properties:
1. Mosquito Vector Asmet #2 = $8.36
2. Mosquito Vector Control Assmt = $5.08




In summary:
1. Cupertino address with Cupertino schools = Total Assessed Value*(Tax Rate 1.1792%)+ Special Assessments $891.22
2. Santa Clara address with Cupertino schools = Total Assessed Value*(Tax Rate 1.176%)+ Special Assessments $469.86 
3. San Jose address with Berryessa schools = Total Assessed Value*(Tax Rate 1.2521%)+ Special Assessments $1,124.22

The final conclusion is that the property tax rates are only slightly different between different neighborhoods within Santa Clara County. If you are evaluating a potential purchase of investment property and need a rough property tax figure to enable you to compute cash flow then use a rough number of 0.0125 * Assessed Property Value (i.e. 1.25% * purchase price for year1)

Over 55? Get California Property Tax Relief.

Do you know that you can transfer your current low property tax base to your trade-down primary home if you are over age 55?

Prop 13 prohibits property tax increases until property ownership is changed.

If either spouse is over age 55 (when the old home is sold), PROP 60 allows replacement of a primary residence with a new home of equal or lesser value within the same county and transfer of the Prop 13 assessed valuation from the old home to the new property. This is allowed once in your lifetime, and a spouse who has done it before ‘taints’ both spouses.

PROP 90 allows counties to elect to accept transfers of Prop 13 values for moves from other counties when a primary residence is replaced with a less expensive home. If you are over 55 and move into a county which accepts Prop 90, you may take your old, lower Prop 13 value, regardless of from which county you move.

Using Prop 90, you can sell your $1,000,000 Sunnyvale home with assessed value $250,000 and move to a new $600,000 home in any of the 8 participating counties; the assessed value of your new purchased home will be $250,000! Wow!!!

Call Robert at 408-893-2410 if you are interested in finding more information regarding this property tax transfer benefit.

Robert Lei, REALTOR®, e-PRO®
Century 21 M&M and Associates
Cell: (408) 893-2410
www.SiliconValleyHouses.blogspot.com
rlei@c21mm.com
DRE# 01716389

Proposition 58 and Proposition 193 allow transfer of real property from parent (and sometimes grandparent) to child without property tax reassessment

Proposition 58 excludes transfers of real property between parents and children from reassessment .
Proposition 193 excludes transfers of real property from grandparents to grandchildren from reassessment if all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer.

In the State of California, real property is reassessed at market value if it is sold or transferred. This can sometimes result in a dramatic increase in property taxes. However, if the sale or transfer is between parents and their children (or from grandparents to their grandchildren, under limited circumstances) the property will NOT be reassessed (if certain conditions are met) and the proper application is filed in time.

These propositions allow the new property owners to avoid property tax increases when acquiring property from their parents (or from their grandparents). The new owner's taxes are calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired.

The transfers of real property excluded from reassessment by Propositions 58 and 193 are:
1)Transfers of primary residences (no value limit)
2)Transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.

The value of transferred property counted toward the $1 million exclusion limit is the Proposition 13 value (factored base year value) just prior to the date of transfer. Usually, this is the taxable value on the assessment roll. If a property is under a Williamson Act (open space) or Mills Act (historical property) contract, it is the factored base year value that is counted, not the restricted value.

Transfers via sale, gift, or inheritance all qualify for the exclusion.

Transfer via trust also qualifies for this exclusion. For property tax purposes, the state looks through the trust to the present beneficial owner. When the present beneficial ownership passes from a parent to a child, this is a change in ownership that is eligible for the parent-child exclusion.

However, you are not required to claim this exclusion from reassessment if it doesn't help you.  If the current market value under Proposition 8 at time of transfer has fallen BELOW the transferor's original Proposition 13 factored base year value, the new owner may be better off NOT to claim the exemption and instead accept a new Proposition 13 base year reassessment.  In this case, reassessment can result in LOWER property taxes by locking in the lower market value as the property's new base year value on the date of transfer. Otherwise, the higher original Proposition 13 base year value set under the transferor's ownership would some day be reinstated as market conditions improve over time and at a level higher than they would be if the property had received a new Proposition 13 base year value on the date the property was transferred.

In any case, you should consult with an estate planning expert for advice before claiming this exclusion.

Seniors can move and still keep their low property tax rate

Seniors can move and still keep their low property tax rate. For detailed information, visit the FAQ from the California Board of Equalization.
http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1

Cupertino vs. Santa Clara vs. Berryessa property tax comparison

For buyers who are numbers driven, I did a detailed comparison of the property tax charges between sample houses in the 3 neighborhoods below:
1. Cupertino address with Cupertino schools
2. Santa Clara address with Cupertino schools
3. San Jose address with Berryessa schools

The overall property tax rates are very similar for all properties in Santa Clara County because for all properties, you start with the same 1% maximum levy on the assessed value and that 1% is the bulk of every property tax bill. The variations are due to the minor elements added on to that.

Three of the add-ons are based on the school district:
1. Community College Bonds is .000326 for CUSD/FUHSD and just .000170 for Berryessa School District.

2. Elementary or Unif School Bonds is .000308 for Cupertino Union School District (CUSD) but higher at .000507 for Berryessa School District.

3. High School Bonds is .000365 for FUHSD but higher at .000712 for East Side Union High School District.

Special assessments are also different for each community:

Some assessments are based on address (not school district).

The house with Cupertino address (based on address not school district) is charged special assessments for the following:

1. Sewer Service - Cupertino $288
2. County Library $33.66
3. Cupertino/Environment/Storm $12

In comparison, the house with San Jose address pays a San Jose Library Assessment of $27.80 and the house with Santa Clara address pays a SCCOSA Assessment of $12.

Other special assessments are based on school district (not address).

For instance, regardless of address, homes in the Cupertino Union School District (CUSD) and Fremont Union High School District (FUHSD) pay CUSD Parcel Tax $125 and FUHSD Parcel Tax $98. In comparison, the Berryessa School District Parcel Tax is just $79.

In summary:
1. Cupertino address with Cupertino schools = Assessed Value*(Tax Rate = 0.011506 + 0.000072)+ $638.46
2. Santa Clara address with Cupertino schools = Assessed Value*(Tax Rate = 0.011482 + 0.000072)+ $316.80
3. San Jose address with Berryessa schools = Assessed Value*(Tax Rate = 0.012222 + 0.000072)+ $694.46

The final conclusion is that the property tax rates are only slightly different between different neighborhoods within Santa Clara County. If you are evaluating a potential purchase of investment property and need a rough property tax figure to enable you to compute cash flow then use a rough number of 0.0125 * Assessed Property Value (i.e. 1.25% * purchase price for year1)

Prop 90 survives battle in Santa Clara County

Prop 90 was in danger of being rescinded. However, on June 14, the Santa Clara County Board of Supervisors unanimously voted to keep Prop 90 in place. Under Prop 60 and 110, if a seller or spouse is over age 55 or if a seller of any age is disabled where their original residence is sold, the seller may transfer the base year value of their home to a replacement residence of equal or lesser value within the same county. Prop 90 extended this benefit to seniors and disabled who move to counties that adopted Prop 90 rules. County Assessor Larry Stone wanted to eliminate Prop 90 to increase revenue. The eight counties that currently participate in Prop 90 tax base transfers are Alameda, Santa Clara, San Mateo, San Diego, Los Angeles, Orange, El Dorado, and Ventura. (El Dorado adopted Prop 90 in 2010. Santa Clara opted in 20 yrs ago.)

Santa Clara County Assessor's New Tool for Estimating Supplemental Property Taxes

The Santa Clara County Assessor's Office has developed a new tax estimator to help new and prospective homeowners estimate the amount of property taxes they will owe following their purchase. Supplemental assessments and taxes are in addition to the regular assessments and taxes. The Regular assessments are prorated during escrow such that the seller and buyer each pay the portion of taxes attributed to their period of ownership. This Regular property tax is based on the old owner's current assessed value prior to the purchase transaction. The supplemental assessment is based on the difference between the prior assessed value and the new assessed value. This value is multiplied by the tax rate then the resultant tax is prorated for the number of months remaining in the fiscal year from the date of acquisition by the new owner. The sum of the regular tax bill and the supplemental tax bill results in effect to a property tax based upon the value of the property as of the new owners' date of purchase. Realtors typically provide prospective homeowners with an estimate of their taxes for future years by multiplying the purchase price by an estimate tax rate. These estimates usually don't emphasize the new property owner's responsibility to pay the supplemental tax bill that will result from their purchase. This is why the Santa Clara County Assessor's Office created the new supplemental estimator at www.sccassessor.org/ste . This site should take the mystery out of supplemental property taxes.