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Comment by matt_wulfeck | Hacker News Reader

Prop 13 makes it really expensive to upgrade, so there’s also less mobility from the “modest” range of homes (approximate $1m range imho).

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From my understanding, it's not even a matter of upgrading. Two neighbors with exactly identical homes, who have lived in the same city for 20 years, wouldn't be able to sell their houses to one another (for a net gain of $0 each) without triggering a massive tax increase for both parties.

Yes that is correct. They also can’t build their home out and increase the square footage to better accommodate their families without triggering a tax appraisal. In a word their stuck, which helps explain again why there’s very little mobility.

Theres a common real estate move where you can defer your taxes on a real estate sale if you use the proceeds to buy a similar amount of property (dollar amount) [0].

So as long as the proceeds from the sale go into a similar type of property/business then you can defer taxes for a future date.

[0]:https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-c...

The problem we’re describing is that their property taxes would increase sinificanty, thousands of dollars a month.

Yes temporarily sure? But if you keep deferring can you really tell me what the tax laws will be 50 years from now? I don't think in 2068 if you finally decide to sell and cash out the IRS will come with a list " Well on 2030: taxes were X%, again on 2035: taxes were Y%". They will just give you a bill for the present day tax system

From my understanding, the issue is with the annual recurring property taxes which have a capped annual increase per Proposition 13. Thus, the "taxable value" of the homes pre-sale is a fraction of what it is post-sale, even after swapping for an identical home. This is not an IRS issue, so much as a county tax assessor issue.

This is for investment property, not housing one resides in.

My house is functionally identical to my neighbors', but they've been in our neighborhood for ~20 years; me for just 8.

Their taxes are ~$5k; mine are ~$9k. Some of that is certainly from the purchase price as assessed in 2010, but at least $2k is for the couple minor things I've pulled permits for where the city's reassessed us each time and jacked them up.

I'm about done pulling permits.

Where are you? In CA, cities don't have assessment powers.

My family fits this statement. Rather than move to a bigger house that will accommodate us, but cost more annually in property taxes, it is more cost effective to just remodel and expand the current house. Unfortunately, this moves our "starter" house up another notch, reducing the lower cost inventory in the neighborhood.

Although, at this point all starter homes that go on sale in our city are being purchased by developers, torn down and rebuilt.

Anyone older than 55 is allowed to transfer their basis to a new property.

I suspect having to pay capital gains taxes on appreciation over > $500k is a way bigger barrier to moving.

e.g. Even if you can't basis transfer, imagine you bought for $500k 20 years ago; it's now worth $1.5M. You should be paying $19k a year in property taxes, instead you are paying maybe $9k.

That extra $10k year going forward is not all that much (16 years of time to matter!) compared to the 33%*$500k = $165k in cap gains taxes you will owe on the sale.

Why would you move to a bigger house at 55 or move at all? And you can only transfer the basis if you downsize or stay the same, which has net zero impact on inventory.

Prop13 keeps people in starter homes for much longer.

Moving to a smaller house when your children have moved out is not exactly uncommon. And that matches moderately well with >= 55 too (kids born when you're 25-35, say, and moving out when they are 20-25).

  Anyone older than 55 is allowed to transfer their basis to a new property

Not all CA counties allow that, to my knowledge.

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