California Elections : Prop. 60 Would Give Home-Buying Tax Break to Senior ‘Empty Nesters’

Proposition 60 on the Nov. 4 ballot is being pitched to voters as a boon for “empty nesters”--senior citizens whose children have grown up and left their parents’ spacious homes.

With the measure in effect, older property owners could sell their homes and move to smaller residences without fear of a big tax bite.

Presently, buying another house usually means higher property taxes, a condition brought about by Proposition 13. The 1978 tax-cutting measure sets taxes on homes and commercial real estate based on 1975-76 assessed values plus 2% a year, unless the property changes hands. In that event, the tax rate is reformulated based on current market value--meaning a higher rate if the property has increased in value, usually the case in California.

Low Property Taxes

Thus, individuals such as senior citizens who have hung on to their homes for a number of years have enjoyed relatively low property taxes.

A move away from the home, however, could trigger dramatically higher taxes because a purchase would be based on the current market value of the residence. This situation has undoubtedly inhibited many California homeowners--both young and old--from acquiring new residences.

Under Proposition 60, homeowners age 55 or older would be allowed to transfer the assessed value of their current home to another home. Four conditions would have to be met to get this tax break, however. The new home must be:

- A primary residence.

- Of equal or lesser market value than the original home.

- Located within the same county.

- Purchased or constructed within two years of the sale of the current residence.

Proposition 13’s impact on the real estate market, said Richard J. Rosenthal, a Venice realtor, is that it’s “actually holding people in their homes.”

Rosenthal, president of the California Assn. of Realtors, which supports Proposition 60, said in a telephone interview: “We are aware of many potential clients who would like to get out of a big home (and) readjust their shelter needs during their senior years. . . . As a social policy (the measure) makes some sense.”

The property reassessment formula of Proposition 13 eight years ago also gave rise to another measure on the November ballot, Proposition 58, which seeks to create a tax break for intrafamily real estate transfers.

2 Current Tax Breaks

Current law already provides two property tax breaks for senior citizens. There are partial property tax refunds allowed to low-income elderly individuals, and there are property tax deferrals for homeowners over age 62.

Age 55 is used as the trigger for the Proposition 60 tax benefit because it is tied to a federal law giving individuals 55 or older a one-time capital gains tax break on the sale of their home, backers said.

“I don’t personally think of persons (aged) 55 as senior citizens,” said Mark Ryavec, chief deputy to Los Angeles County Assessor Alexander Pope and consultant to People for Proposition 60, the campaign group backing the measure. “But the empty-nest phenomenon exists within this age group.”

Pope and Assemblyman Dave Elder (D-Long Beach) drafted the measure and formed the Pope-Elder Tax Reduction Committee to run a limited campaign on its behalf. Elder said he will lend the committee up to $20,000 from his own campaign reelection fund to underwrite the effort. Among their supporters is the influential American Assn. of Retired Persons, the nation’s largest senior citizens group.

A corollary to Proposition 60, lawmaker Elder maintained, is that by freeing up houses that have not been on the market for years, a ripple effect would open up homes to first-time buyers in lower economic groups.

Moreover, he said, spurring more housing activity means, under the Proposition 13 reassessment formula, more revenue for local government.

For each senior citizen lured by the tax break into a new residence, Elder said, there will be “four or five” other residential transactions. This “real estate chain,” he said in a telephone interview, “will accelerate the natural turnover of residences and generate substantial public revenues.”

Analyst Disagrees

The state legislative analyst disagrees with Elder’s revenue conclusions.

Without giving a specific dollar estimate, the analyst said in the California ballot pamphlet that Proposition 60 “would reduce property tax revenue collections. These revenue losses probably would amount to several millions of dollars per year, beginning in 1987-88. Cities, counties and special districts would bear about 60% of the revenue loss.”

The balance of the revenue losses, the analyst said, would be borne by school and community college districts, which would have to be made up from the state’s general fund.

For this reason, the measure is opposed by the League of California Cities and the County Supervisors Assn. of California.

“Counties are already in fiscal trouble, and this is just one more revenue loser,” said Ken Smith of the county supervisors group.