Abandoning Suburbia

[Spartana]

If you sell and then buy a new to you house in CA aren't you then subject to the higher taxes on the new house? Or if you spent the proceeds on a house in another state would you not then be subject to the much higher annual real estate taxes on that property?

Awakendsoul is too young to take advantage of this, but in Calif part of our Prop 13 property tax rules allows for other things than just keeping taxes at 1% of the purchase price with annual increases of no more than 2% on prop taxes. It also includes a one-time transfer of your homes original property tax basis (usually original purchase price) to a new home if you are 55 and the new home you buy is of equal or lesser cost than what you sold your old home for. Another Prop allows for the transfer of property between child and parent or grandparent without increasing the property taxes on the house no matter what the child paid the parent for it. For example: I bought my Mom's house in 1996. She had owned it a long time, had paid around $20K - 25K for it and her Prop 13 tax rate was $300/year. I paid her $120K for it. So my property taxes should have been minimum of 1% of that amount - $1,200/year or more. However, because I bought it from my Mom, I could transfer her prop tax rate of $300/year so I was able to get that. Then, if I had stayed there until I was 55, I could have sold it for say $300K and bought a new place for $300K or less, I could have transferred that tax basis of $300/year to my new place rather than have to pay the approx. $3,000 or more in prop taxes/year. And of course a 2% annual tax increase on $300 is lots less than an annual 2% tax increase on $3,000! Going to keep property taxes low forever!.

But yes, if Awakensoul wasn't 55 when she sold her place and bought another , she'd have to pay property taxes based on the new houses purchase price. In Calif that is 1%. Same if she moved to a Calif county that doesn't transfer the old tax basis, or out of state. For myself, if I was in Awakened soul position, I'd probably take the $500K and run to somewhere less expensive but just as nice - especially if they will probably develop her area (and being Calif they will) eventually. I plan to sell my place once we've (sis and I) have helf it 2 years to avoid capital gains taxes (also something Awakensoul needs to calculate in if she sells) and move to a different locale. For me staying here is just a combo of investment and practicality (have yard for dogs and sis is here to pet sit so I can travel) not love of the area or house.

[SteveinMN]

in Calif part of our Prop 13 property tax rules allows for other things than just keeping taxes at 1% of the purchase price with annual increases of no more than 2% on prop taxes. It also includes a one-time transfer of your homes original property tax basis (usually original purchase price) to a new home if you are 55 and the new home you buy is of equal or lesser cost than what you sold your old home for. Another Prop allows for the transfer of property between child and parent or grandparent without increasing the property taxes on the house no matter what the child paid the parent for it.

I hope you Californians recognize what a sweetheart deal this is! Yes, real estate in California is pricier than in many other areas. Yes, some of the state is going broke. But, short of rent-controlled apartments in New York City, I can't think of any other place where property taxes aren't going up Up UP. On our home, median-priced for the Twin Cities market, we're paying about $200 a month in property tax, not to mention the "fees" we've been paying so politicians can boast they've kept our property taxes low. And it wouldn't matter if we bought our house from the Governor hisself. On my investment property, the tax is going up by about a third next year. Not that I think everyone should cap their property taxes like this. But please recognize it for the screamin' deal it's been over several years.

[ApatheticNoMore]

Yes well you do realize the state income tax rate here is nearly 10% marginal on what is a middle class income here? Yea that goes right on top of whatever federal taxes you pay. It's near the highest in the nation, try that with no deductions. Then the state adds on SDI taxes too. Then the state sales taxes are one of the highest in the nation as well, it fluctuates a bit, but often it isn't too far from 10% either. I tell people (renters like me) in places like Taxachussetes about the taxes I am paying (sales and income) and THEY can't believe that I am paying such high taxes! It's really that bad. Only we don't get the quality of services most high tax states get (K-12 education, infrastructure - none of those things are in good shape).

It seems like the entire burden of taxation is shifted on to wages in order so homeowners can have low taxes even though many of those wage earners will themselves never be able to afford houses here. Can you say regressive in the extreme? So yea fine California, where property profits are rewarded and working for a living is most definitely not.

I also think things like Prop 13 directly contribute to the unaffordability of housing here, housing prices diverging vastly from the national correlates pretty well with the passages of Prop 13. But that's correlation, here's theory: Prop 13 keeps houses that would otherwise be released to the market off the market (you may not even downsize as an empty nester, even if it otherwise makes sense, because then you lose the tax benefits), the tax benefits can be transferred integenerationally too. Seems to me it must keep some houses off the market. Then ... the future benefits of all those tax breaks are probably figured into the cost of a house, this is basically just doing discounting of all those future tax benefits into the current price. Not the only reasons houses are an arm and a leg here but one reason.

[awakenedsoul]

I hope you Californians recognize what a sweetheart deal this is! Yes, real estate in California is pricier than in many other areas. Yes, some of the state is going broke. But, short of rent-controlled apartments in New York City, I can't think of any other place where property taxes aren't going up Up UP. On our home, median-priced for the Twin Cities market, we're paying about $200 a month in property tax, not to mention the "fees" we've been paying so politicians can boast they've kept our property taxes low. And it wouldn't matter if we bought our house from the Governor hisself. On my investment property, the tax is going up by about a third next year. Not that I think everyone should cap their property taxes like this. But please recognize it for the screamin' deal it's been over several years.

Oh yeah. I do realize it. My father has been very aware of that, too. He and my mom bought a home 30 years ago in the Bay Area for $140,000. Now it's worth almost two million. Their property taxes are low, because of Proposition 13. If one of the three of us, (my brothers and I,) buys the other two out, we can keep the taxes low, like Spartana did with her mom's house. But, since my older brother died, my parents realized how dangerous it would be to transfer property to adult children who are in debt and way underwater on their mortgages. Spartana is frugal, but my brothers and sister in law overspend. Their homes have plummeted in value. I'd rather my parents keep the money in case they need it for long term care.
I pay about $1,400. a year in property taxes on the cottage I bought 15 years ago. The only way I would buy an expensive home is if I become very wealthy and could afford the property taxes. I may be in that position in my sixties. (If not, I can stay here and enjoy my simple and inexpensive lifestyle.) I don't have any heirs, and I live happily on very little. This cottage would also be a good rental property if they don't develop the area. But, they already are putting in homes a block from where I live. When I bought this house, this area was considered the country. It's on the outskirts. The strategy does work in CA. It's good for someone like me who never really earned a lot of money. Buy and hold...my approach has been to spend very little.
My thoughts on Carmel were that a one bedroom cottage going for $600,000. now would go up to a million or more. My dad feels real estate in Carmel is overpriced. But, it still might work for me if these other developments pan out...

[treehugger]

I hope you Californians recognize what a sweetheart deal this is! Yes, real estate in California is pricier than in many other areas. Yes, some of the state is going broke. But, short of rent-controlled apartments in New York City, I can't think of any other place where property taxes aren't going up Up UP. On our home, median-priced for the Twin Cities market, we're paying about $200 a month in property tax...

Before you go getting all jealous () know this: I have directly benefited from Prop. 13 because we bought our house from my MIL, so we pay about half the yearly property tax our neighbors do. And we still pay $266 a month in property tax, on a modest 1971 tract home, in one of the less expensive Bay Area cities.

As to the OP, I have lived in 6 different cities in my life, all in California, and all suburbs. I hope to try something else in the next couple of years (the urban end of the spectrum), to get a new experience. I think I will like it better, but there's only one way to find out. I definitely wish we had better access to transit and more pedestrian-friendly spaces where I live.

Kara

[SteveinMN]

Here in Minnesota, our local sales tax is 7.375% (we pay extra for the arena a mile away). Cheaper than 9.75%, but if you don't buy much, it doesn't cost you much. Income tax for us is 7.05%. Property tax runs a couple hundred a month. Plus fees for road maintenance, sewers, security system (if you have one),... Definitely one of the higher-tax states, as we don't do without an income tax, like Washington does, or property taxes, as California almost does. But I used to live in New York, so I don't complain about the taxation here as much as native Minnesotans do. I can actually see what I'm paying for here; that was much harder in New York.

[iris lily]

I hope you Californians recognize what a sweetheart deal this is! Yes, real estate in California is pricier than in many other areas. Yes, some of the state is going broke. But, short of rent-controlled apartments in New York City, I can't think of any other place where property taxes aren't going up Up UP. On our home, median-priced for the Twin Cities market, we're paying about $200 a month in property tax, not to mention the "fees" we've been paying so politicians can boast they've kept our property taxes low. And it wouldn't matter if we bought our house from the Governor hisself. On my investment property, the tax is going up by about a third next year. Not that I think everyone should cap their property taxes like this. But please recognize it for the screamin' deal it's been over several years.

We pay $275/month for a relatively modest house around 2,000 square feet with a bit extra land. And if you understand the shape that it was in for most of the decades we lived here, "modest" doesn't describe it it was downright low end.

Why do you consider that $200/month a lot of money? That seems fairly low to me, although I think of Twin Cities as being fairly high in taxes, for the Midwest anyway. We are not and do not want to reach New Jersey level property taxation.

[puglogic]

I live in an exurb, with a line of foothills between us and Denver (just the way we like it). I can take the bus downtown and in a few days will be 15 minutes from the light rail, which will get me to the entire Denver area...well, at least the parts I may need to go to. I'm happy to be here. I'm not interested at this juncture in being any further in, or any further out. Kunstler makes my head hurt, but I happen to agree that when the sh** hits the fan, inner cities and anything within striking distance are going to become extremely difficult places. High concentration of very desperate (hungry) people, high degree of food insecurity, high dependence on imported food, water, etc....hopefully the community structures will be enough to help most people make it, but I would not want to be caught there.

[Spartana]

I hope you Californians recognize what a sweetheart deal this is! Yes, real estate in California is pricier than in many other areas. Yes, some of the state is going broke. But, short of rent-controlled apartments in New York City, I can't think of any other place where property taxes aren't going up Up UP. On our home, median-priced for the Twin Cities market, we're paying about $200 a month in property tax, not to mention the "fees" we've been paying so politicians can boast they've kept our property taxes low. And it wouldn't matter if we bought our house from the Governor hisself. On my investment property, the tax is going up by about a third next year. Not that I think everyone should cap their property taxes like this. But please recognize it for the screamin' deal it's been over several years.

Oh I recognize it for sure. One of the things I always ask around here is "how much do you pay in property taxes in your state?" since, if I want to move out of here (I do eventually) then that will be a big consideration. Of course, as you said, housing costs here are generally much higher than other places - the average in my ethnic working class 'hood is close to $400K, so base property taxes would start at $4,000/year PLUS the many other things like school bonds and special assesments (taxed at a percentage of the purchase price) that get tacked onto your annual property tax bill. For instance, even though my old houses property tax amount was only $300/year, I paid about $1,000/year because of the "extras". So in a $4,000/year property tax bill the total amount due might actually be closer to $5,000 or $6,000/year - over $500/month for a 1950's 1,000 sf tract home in a lower income ethnic working class neighborhood. My current property taxes (split with sis) are over $300/month for a "serious" fixer in orginal condition from the '50's and in the same area and same size as above. So it's not THAT cheap!! My situation in my old house was somewhat unique and certainly isn't the norm for most Hellifornians. But if you can buy an inexpense home in Calif (and you can) or already own a place with low taxes like my Mom did or Awakenedsouls parents do, the prop tax structure is great - especially for retired people on a fixed income. You know it won't go up by more than 2% a year and so most can stay in their homes forever. I have heard some horror stories about very drastic and rapid property tax increases in other states that caused many seniors to lose their homes.

[Spartana]

If one of the three of us, (my brothers and I,) buys the other two out, we can keep the taxes low, like Spartana did with her mom's house. But, since my older brother died, my parents realized how dangerous it would be to transfer property to adult children who are in debt and way underwater on their mortgages. Spartana is frugal, but my brothers and sister in law overspend. Their homes have plummeted in value. I'd rather my parents keep the money in case they need it for long term care.
.

I actually bought my Mom's house at the (then) fair market value as my Mom was planning to sell it to move into a smaller seniors co-op apt and I (and dh) both worked fairly close by and were looking for a house to buy ourselves. So it wasn't just transferring the property to me and then my Mom continuing to live there, it was an actual sale with a mortgage, etc... My Mom got the full amount of money for the home's value (but with no real estate commission having to be paid because we did it ourselves) to buy her little apt for $27K - leaving her $93K in equity to suppliment her $400/month Soc. Sec. & support herself, and it became my & dh's home after we bought it. Then I bought him out a year & 1/2 later when we seperated. When my Mom died, my sister and I equally just inheirited her co-op apt (sold it for $93K) and any cash she had left over after we paid off all her medical bills and probate expenses. It did have to go thru probate (expensive night mare!) and would have been best if she had put it in a revocable living trust.

I also would never put my house (or any assets) into someone else's name. I've heard a lot of horror stories about parents putting their kids on the deed or titling their house to the kids to avoid probate and/or estate taxes and then the kids get sued or have an accident, etc... and the parents lose their home because it's in the kids name. Best to put things like that in a revocable living trust instead.