Proposition 5 is about property taxes for seniors older than 55, and a tax break that could lead to $1 billion in lost revenue for local government over time.
At the center of the proposition is a tax break for homeowners older than 55 when they move into a more expensive home. While a tax break is available for eligible persons when they move into a less expensive home than they're currently in, that tax break does not apply when the house is more expensive. The proposition would make all homeowners over 55, or who meet the qualifications, eligible for property tax savings when they move into a different home.
What does the proposition do?
Generally, this proposition would remove requirements for these senior homeowners and allow them to be eligible for a tax break when they move into a new home, regardless of whether it is more expensive or less expensive than before.
Here’s the requirements that the proposition would remove from current law:
- Replacement property be of equal or lesser value
- Replacement residence be in a specific county
- Transfer can only occur once
Removing these requirements from the law would allow people to move anywhere in the state, make it easier to purchase a more expensive home, reduce taxes for newly purchase homes that are less expensive, and remove limits on how many times homeowners can use the special rules.
One of the potential drawbacks is that the tax breaks are estimated to cost schools and local governments about $100 million annually in the beginning and about $1 billion per year over time.
What happens to that $1 billion in property taxes?
The reduced taxes mean less revenue for schools and local governments. Even though there was speculation from the Legislative Analyst for potentially higher taxes from home prices and more home building, the lost revenue is still a bigger amount.
Additional notes from the Legislative Analyst claim that there'll be more state spending for schools, an increase in property transfer tax revenues from increases in home sales, an increase in income tax revenue from the number of home sales, and some one-time administrative costs for counties.
Some arguments for and against Proposition 5
- Seniors can downsize or move closer to family
- Severely disabled can move to a safer or more practical home
- Disaster victims can find new homes anywhere in the state
- $1 billion lost from schools, local government every year over time
- No help for families struggling in severe housing crisis
- Allows for people over 55 who can afford to buy bigger and more expensive houses to get a tax break
One more before you go... Brandon Rittiman explains the ins and outs of Proposition 5 and what your vote will mean going into the election.