Will Addition Negate Prop. 13 Tax Base? | Print |  E-mail
Thursday, 01 November 2012 14:55

By Phil Hunt

Special to the Times

Q: I have a 120-year-old house I have owned for 40 years. I am considering a $150,000 upgrade to a duplex or in-law for a rental. Will my Prop. 13 tax base be lost if I do this? How much will my taxes increase if I do this conversion?

A: Before you undertake such a project, it would be a good idea to go to the city or county (depending where the property is located) planning department and see if your property is zoned for a duplex. If the zoning is single-family residential, you will not be allowed to build a duplex unless you can get a zoning change.

It is my understanding that in-law units, however, are allowed in any residential zoning area but there are strict requirements as to how they are built (i.e.  size, fixtures, windows, heating, plumbing, sewer, entrances and many other requirements).

You will need an architect to design the addition and a general contractor to build it. It also means taking out permits to do the work. There will be inspections of the work as it progresses. The permit will include a value of the permit (i.e. the expense of the material and labor costs), which you have indicated will cost $150,000.

When the permit is signed off as completed, your property value will increase by the amount of the permit and your taxes will increase based on the new property assessed value. If the addition does cost $150,000, your taxes will increase by approximately $1,800 a year, but you will not lose the Prop. 13 tax base.

The Prop. 13 tax base will stay on the property until you sell. And, if you sell and want to take the base with you to the next property, you must purchase a lesser-valued property than the one you sold, in the same county.

The test of the purchased property value compared to the sold property value is not determined by the sales agreement and the purchase agreement; it is determined by the tax assessor. They will determine if the purchased property is worth less than the relinquished property, no matter what the agreements say.

This process of carrying forward your Prop. 13 tax base is not automatic, you must apply for the tax carry forward when you sell and repurchase. This is when the assessor assesses the two properties and makes the determination of values. You have nothing to do with their determination.

This works if you are 55 or older and if you purchased within the same county or the six reciprocal counties: El Dorado, Los Angeles, Orange, San Mateo, Santa Clara and Ventura. You can carry your tax bases with you into these counties.

Thanks for the question.

Phil Hunt is a real estate broker in Castro Valley. Fax questions to 583-5480.



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