BILL ANALYSIS Ó
AB 2668
Page 1
Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2668 (Mullin) - As Introduced February 19, 2016
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill allows certain disabled persons or those over the age
of 55 to transfer their base year value to a home of greater
value. Specifically, this bill:
1)Allows eligible households to transfer the base value of their
original home to a replacement home of greater value ("buy
up") within the same county. The new base value of their
replacement home is the base value of the original home and
the difference between the cash value of that original home
and the cash value of the replacement home.
AB 2668
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2)Limits eligibility for the "buy up" provision to disabled
persons or those over the age of 55 who have household incomes
below the county median income.
3)Makes the provisions operative upon voter approval of Assembly
Constitutional Amendment (ACA) 12.
FISCAL EFFECT:
Annual property tax revenue losses of approximately $2.9
million, resulting in GF costs of approximately $1.4 million as
a result of the Proposition 98 guarantee.
COMMENTS:
1)Purpose. According to the author, AB 2668 will help seniors
move out of their homes that are currently too large for them
and will add to the stock of affordable housing.
2)Background. Adopted in June 1978, Proposition 13 was designed
to provide real property tax relief by limiting the assessment
and taxing powers of state and local governments. As a general
rule, Proposition 13 limits any tax on real property to 1% of
the property's assessed value, measured as either the assessed
value as of the 1975-76 tax year or the appraisal value when
purchased, constructed, or a change in ownership has occurred,
subject to adjustment for the lesser of inflation or 2% per
year. As a result, real property is only reassessed to fair
market value upon a change in ownership.
One exception to the change in ownership fair market value
reassessment is the "base-year value transfer" provision.
AB 2668
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Under that rule, a disabled homeowner or a homeowner aged 55
or older may elect a once-in-a-lifetime transfer of the base
year value of the homeowner's principal residence to a
replacement residence of equal or lesser value within the same
county, or in certain other counties, within two years of the
sale of the original residence. The base year value transfer
allows the homeowner to continue paying property taxes at the
amount and rate of growth of the previous residence and not
the fair market value of the new residence. This bill would
also allow certain homeowners to transfer the base year value
of their home to a home of greater value.
3)How would the "buy up" option work? AB 2668 allows a qualified
homeowner to pay reduced property taxes for a replacement
dwelling that is more expensive than their current home. For
example, a qualified family lives in a home with an assessed
value of $100,000. Then: they sell that home for $200,000, its
new full cash value, and purchase another home for $350,000.
Without AB 2668, that household would be unable to transfer
the base value to their new home. AB 2668 would allow this
household to transfer the base value and require them to pay
property tax on that base value in addition to the difference
in the full cash value of their original home and their new
home. This means that their property taxes would be taxes on
the original base value ($100,000), plus the difference
between the reassessed value of their old home and their new
home ($150,000 for a total of $250,000) instead of the new
home's assessed value ($350,000).
4)Median income restriction. AB 2668 was amended in the Assembly
Revenue and Taxation Committee to restrict eligibility for the
proposed "buy up" provision to homeowners with incomes under a
county's median household income. While precise data on who
currently transfers the base value of their home and their
incomes levels is unavailable, income data for the overall
senior population indicates that this amendment will
significantly cut the number of households who otherwise would
make use of the new "buy up" option. On average, an estimated
45% of senior households in California have incomes below the
AB 2668
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county median income. Since higher income households would be
more likely to transition into a home that was of higher
value, this amendment greatly reduced the fiscal cost of AB
2668.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081