Monthly Archives: January 2020

Polls Confirm CA Proposition 13 Continues to Provide Middle Class Homeowners in California of all Ages with Real Tax Relief

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Despite Media Claims that Prop 13 Favors   Older, Wealthier Long-Term Property Owners

In a powerful article entitled, “No It’s Not Just for Seniors — Prop. 13 Has Something for Everybody” (Click Here to Read Entire Article)… written by the talented writer Jon Coupal for the legendary Howard Jarvis Taxpayers Association, Mr. Coupal wields the truth about how  Proposition 13 continues to provide tax relief to regular middle class Californians, not just the rich; the way a knight in shining armor wields a glistening sword in battle.

Mr. Coupal points out the following benefits Proposition 13 continues to provide for mainly middle class homeowners in the state of California… despite unfounded claims from several sectors in California that insist, without convincing data to back it up, that wealthy homeowners have been the true recipients of real property tax break benefits from Prop 13, since 1978, Click here for more discussion on this false claim. Mr. Coupal tells us:

“…By lowering the tax rate from nearly 3% to 1% and restricting annual increases in assessed value to 2% – Proposition 13 has provided a stable system for all – including government agencies that depend on property taxes.  Still, the opposition continues to gin up discontent against the tax-limiting measure – using absurd and sometimes insidious arguments. Critics whine about fairness like children in a school yard shouting “Not fair! Not fair!” They point out that in some neighborhoods a recent home buyer is paying more in taxes than a neighbor who has owned their home for thirty twenty or even ten years.

This they claim shows that the tax burden is being born by the young while older property owners reap the benefit. Of course this is nonsense. The longtime owner has been paying property taxes for years — property taxes that built the infrastructure the new buyer now enjoys — and they began paying based on what they could afford to pay for their home at the time of purchase. The new buyer is in the exact same position in that his or her taxes are based on what they can afford now and they too enjoy the benefit of knowing what their taxes will be in the future.

What Proposition 13 provides to both new and longtime homeowners alike whatever their age is certainty and security in taxation. And the critics of this system are not in the least bit concerned about “fairness”; they are looking for more money from the older owners.”

Opponents to Proposition 13 claiming that new home buyers moving into the same neighborhood as home owners that have been living there for 20 or 30 years are always young – is an absurd claim to begin with.  How can these critics possibly make an assumption that all these new home buyers are young ?

Secondly, how can they possibly make the jump from there that young home owners therefore carry the bulk of the property tax burden in California… when in fact Proposition 13 continues to provide tax relief to younger property owners, or, more realistically, new home buyers, with the same tax relief benefits as older home owners receive, or as long term home owners that have been living in the same home for decades, receive.  It’s an even playing field. To claim this is not so is simply out of step with reality.

As a matter of fact there is no factual data to back up either argument – long term dwellers or elderly home owners. Hence, this is yet another unfounded claim to back up a clearly biased argument to denigrate and tarnish Prop 13… built on a stack of cards. Not facts. As a matter of fact, we’d go so far as to suggest that this entire point of view, for some, is built on an obvious bias against older folks. It’s called “age-ism”, a bias we’re all familiar with.

For others, who make a living in the real estate game, and are presently grappling with a decrease in homes available for sale in certain areas in California – it wouldn’t be entirely unrealistic to suggest that this critical argument is merely an effort to get more properties on the market, to help realtors and brokers generate more revenue! And for newspapers who take this side of the argument, to generate more revenue from real estate ad sales. These issues go hand in hand.

Certainty and security are important matters to elderly Californians; so in fact (alluding to Mr. Coupal’s article title), the Proposition 13 tax break actually does benefit seniors in particular, not only due to the ability to avoid property tax reassessment – but due to the fact that many seniors see a slow-down in income in their mid to late 60s… Therefore a program that prevents their property taxes from going up and in fact sustains a very low rate, when you add it all up, at 1% to 2%, is going to be beneficial to, and popular with, elderly property owners who tend to live on more of a fixed income than many people do who are in their 30s, 40s and early 50s, for example.

So with all due respect to Mr. Coupal, it’s not a negative matter to point out that Proposition 13 does help to provide older property owners with a more predictable and affordable future. As a matter of fact, this applies to anyone living on a fixed middle class, or even upper middle class, income. We could look at veterans, retired police officers, post office and other municipal or govt. workers; as well as retired white collar folks living on retirement benefits from a former job, although, regrettably, that appears to be a fading prospect for most Americans these days. However… just the same.

The point is, Prop 13 contributes predictability for people who need a predictable future, economically. Certainly, some of these folks may have some stock here and there, but as we can see from recent events, Wall Street investment outcomes are not exactly something we can depend on these days – no matter how many analysts and financial advisors claim to have a financial crystal ball.

At any rate, let’s revisit some of these critics of Proposition 13, shedding crocodile tears and feigning interest in being “fair” to all homeowners… while at the same time really wanting more money from home sales, from buyers of all ages, in particular older buyers – as well as more cash from higher rentals. More expensive home values typically equal higher rentals. Which further feeds the bias against older home owners.

So if elderly home owners maintain the same primary property for decades, and possibly own additional properties as well, critics of Prop 13 insist that these homes inherited by adult beneficiaries, with current property value reassessment out of the picture thanks to Prop 13, all adds up to Proposition 13 being the sole cause of property owners keeping homes in the family… going to offspring rather than being available to as properties for sale.

Mr. Coupal really is 100% correct. These homes, going to adult children, without reassessment and a higher tax hit, would be inherited by these children of elderly homeowners regardless of Proposition 13 non-reassessment, or even California’s Proposition 58 property transfer tax break. People transfer property, or enable their children to inherit their property, regardless of whether they are benefiting from a tax relief program, or not. This is simply what people have been doing for their children for hundreds of years! Way before Proposition 13 ever appeared on the scene.

The below argument, and you can read the entire diatribe by clicking here, https://lao.ca.gov/Publications/Report/3706 is exactly the type of standard critique Mr. Coupal is talking about in his article at Taxpayer Association. These critics frequently take a wild leap to a conclusion that is merely a fear based outcome, not factual one – should you be a realtor or residential property sales executive, experiencing dwindling sales lately. They are taking some factual information, mixing it all up together and coming up with the following conclusion:

“Inheritance exclusions appear to be encouraging children to hold on to their parents’ homes to use as rentals or other purposes instead of putting them on the for sale market. A look at inherited homes in Los Angeles County during the last decade supports this finding. [Data] shows the share of homes that received the [Proposition 13] homeowner’s exemption—a tax reduction available only for primary residences—before and after inheritance. Before inheritance, about 70 percent of homes claimed the homeowner’s exemption, compared to about 40 percent after inheritance. This suggests that many of these homes are being converted from primary residences to other uses…”

In actual fact, this homeowners exemption from tax reassessment does apply to non-primary (i.e., additional) properties. So this part of their premise is in fact incorrect. Advancing this type of argument, that all these homes in California are not shifting to home sales, making money for realtors; and are robbing desperate Californians of the ability to purchase lovely homes in safe neighborhoods – and that this is strictly the fault of Prop 13 tax reduction, and is just plain “unfair”…

Actually, what this is all about is not “fairness”… it’s basically indicating that shrinking home sales throughout California is specifically due to older Californians taking advantage of tax relief from Proposition 13; and that the Prop 13 tax break is somehow the main reason elderly homeowners are allowing their beneficiaries to take over their aging properties, as opposed to their property or properties going to some real estate company to generate hundreds of millions of dollars in extra revenue. That is, frankly – absurd.

Adding all this up, somehow ending up where senior homeowners would not be providing beneficiaries with inherited property if they were somehow not benefiting from property tax relief is completely devoid of logic. As we have already said, parents transfer property, or make it possible for their children to inherit their property in every state in the union, whether they are benefiting from a tax reduction law called Proposition 13 or not! Somehow also making the jump to the theory that the overall California property tax burden is now being shouldered mainly by young homeowners, while older property owners who have been holding onto their old homes for decades, are somehow reaping the benefit of a general lack of home sales. Because they can save a few dollars in taxes, plus leave property to their children?

With all due respect, these arguments, proposed in newspapers and by certain local politicians, make no logical sense. Especially if you look at most of the homes that are being held onto and shifted over to beneficiaries. A lot of these homes are middle class homes, not super fancy upscale affluent homes, and, most importantly, they have depreciated over the years, not appreciated. So most of those properties need real work.

Proposition 13 continues to provide tax relief for all California  homeowners, with zero negative impact on the real estate market. To suggest that most of these older homes owned for decades by elderly people, would somehow be snapped up in a second in the real estate market, isn’t terribly realistic, is it. Yet critics of Proposition 13 and Proposition 58 continue to insist that wealthy homeowners are still benefiting more from these laws than middle class folks or anyone else in California, and that they somehow are continuing to shrink the real estate market, in areas like Santa Barbara, and San Francisco, Santa Cruz, and Los Angeles.

Proposition 13 continues to provide tax relief for regular everyday home-owning Californians, not matter how much the critics bray  about how all these benefits are going to the old and to the rich. It’s just not so.  You can continue to try to jam a square peg into a round space for some time… But after awhile it starts to become obvious that it just doesn’t make sense. Hopefully the media and certain critical politicians in California with special interests in the real estate business will also begin to see once and for all that these square peg arguments against Prop 13 just aren’t fitting into that round space called logic.

California Proposition 58: Combating false claims that Prop 58 causes home sale shortages – benefiting wealthy homeowners

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After 24 years, CA Proposition 58 still makes it possible for new property owners to avoid property tax increases when inheriting property from their parents. Or vice versa. And of course, as we just indicted, new homeowner’s pay taxes that are based on established Proposition 13 factored “base year value”, and not on updated, reassessed market value at the time real property is inherited. Just as you may have inherited your parent’s home when they passed away.

Many middle class homeowners in California are receiving incredible value from CA Proposition 58, transferring real property to adult children without tax reassessment throwing them into a financial crunch. And this is particularly meaningful to people in older age ranges, where income is generally stagnant, or at least fixed; and net worth tends to decrease noticeably. Anything like severe tax hikes, or any unexpected fees or debts for that matter, are particularly unwelcome by older middle class Americans.

Moreover, to maintain CA Proposition 58 tax relief for real property that has been transferred to them by parents or other relatives – heirs or beneficiaries will often convert property and/or land to other uses, such as turning a property into a rental, or a vacation home, or they might lease out transferred land for farmland, or other commercial uses. Click here for more information on California Property tax by county…

Occasionally, this creates conflict with other family members who would simply prefer to sell off all their property shares right away for fast cash. However, if they can be convinced, with respect to the benefits associated with holding on to transferred property, and making good use of the Proposition 58 tax break – those heirs or beneficiaries can usually be turned around.

Now, interestingly enough, there are a number of people in California who believe that Prop 58 tax relief is “likely” (that is to say, “probably”) contributing to “a critical” decrease in homes for sale in California – driving an outcome that is supposedly negative for regular folks in California who are looking for a home to purchase – and somehow benefiting the very wealthy; encouraging them to hold on to their properties for ever and ever, and never sell.

According to a small but very vocal number of people in the media who are disseminating this point of view, both home seekers and realtors are soon going to be in “desperate need” in the near future to locate homes for sale… and this somehow is, even now, throwing the normal demographic eco-system into total disarray. While somehow mega-benefiting the ultra rich.

This segment of urgent home-seekers is supposedly being victimized by a critical lack of somewhere between 60,000 and 80,000 homes that are now not in the market, for sale. According to these folks, this phenomena, caused by Proposition 58, is turning the normal state of affairs literally upside down due to the passing of homes between parents and children every year – without standard property value reassessment occurring, to determine “true” property value and the subsequent tax hit. That’s roughly 10% of all property transfers in California.

We encounter this argument consistently, generally from the same media and political sources – yet never with any specific statistics to back up these claims, as far as knowing with some degree of assurance that this issue, although a somewhat manufactured issue, is affecting a considerable number of inherited, sold or gifted properties in California every year…

Yet these dramatic claims, always projecting outcomes in the “near future” are always devoid of any facts or data that actually verifies that 60,000 to 80,000 plus home transfers every year are supposedly throwing the natural order of California real estate into total disarray.

In fact, the people making the argument that CA Proposition 58 is in fact the driving force behind this alarming, shrinking number of homes available for sale in California – causing doom and gloom to descend on California home seekers in 2020 and in years to come. In fact, this point of view goes so far as to suggest that all the thousands of empty handed home seekers on the West Coast are soon to be bereft and practically homeless!

However. No one taking this stand has actually presented, or even attempted to present, any factual data that proves Proposition 58 is actually causing this “shrinking inventory” of houses for sale in California. Articles in newspapers such as the LA Times or the San Francisco Chronicle only print quotes from nervous realtors, or academics merely projecting a personal opinion… based on sketchy anecdotal evidence at best; yet never presenting any convincing data to back these claims up.

Secondly, it is important to note that the same parties cultivating and advancing all of these claims also freely admit that Proposition 58 does, without question, protect the adult children of parents transferring property to them, from steep tax increases on inherited property. Just as Proposition 13 does, in fact, protect homeowners from egregious property tax increases year in, year out.

Thirdly, and this is where the bottom line issue emerges – this “whisper campaign” is quite possibly driven by anxiety and panic experienced by seasoned realtors and brokers that are looking to preserve their golden market, which may be experiencing modest shrinkage right now. A market that is not decreasing based on a few thousand home transfers, but that is experiencing modest shrinkage due mainly to the fact that (regardless of what Cable & Network TV News repeatedly tells us) – the job based economy in the US is not in fact booming, as they would have us believe…

Our job based economy is in itself decreasing slightly, in manufacturing, in electronics and computer sales, in auto sales, and within various other formerly active verticals where white collar and high tech jobs are tightening, not expanding. So therefore fewer white collar folks with disposable income are putting their old home on the market and immediately purchasing a 7-figure home the first chance they get; and instead may simply stay where they are, or possibly even down-size, which many middle class and even upper middle class seniors in their early to late 60s are doing these days, and have been for some time.

So instead of blaming Proposition 58 for the fact that homeowners in California are holding onto their old home for a longer period of time rather than putting their house on the market after 9 or 10 years – folks in the media advancing these theories perhaps should take a closer look at the fact the white collar and upper middle class folks who typically drive or spike the California real estate market, are these days waiting a lot longer in order to feel comfortable enough to put their modest home on the market, and actually plunk down a $75,000 or $100,000 cash down-payment towards a new home purchase in a very nice area, where realtors are struggling to sell $800,000, $1.5M or $2M properties in upscale neighborhoods.

As someone once said, “It’s the economy stupid!” It’s the overall job based economy, not Proposition 58, causing a slow-down, or soon to cause any decrease, in real estate sales throughout the state of California.

Dramatic Savings for Californians, with a Positive Affect on Personal Net Worth, Family Bonding and Peace of Mind

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Not to over indulge in generalizations, however when you consider the Proposition 58 tax break, or Proposition 58 property transfer tax relief, in simple human terms, you can clearly see how this type of tax relief allows concerned middle class parents, many of whom without this tax relief would frequently not be able to afford to maintain homes in addition to their own primary property, enabling their young adult children to reside in a safe neighborhood, often nearby; frequently giving middle aged and elderly parents a great deal of peace of mind.

Due to Proposition 58 property transfer tax relief, parents are also able to transfer a primary residence, or perhaps other properties they may own, to their children – without their property being reassessed at market value for state taxation purposes.  Obviously, the difference between having this type of tax relief to take advantage of, as in California; or not having it, as in most other states – can be quite significant.

Click here to look further into details regarding Proposition 58, parent to child transfer, and avoiding property tax reassessment

A home in California that is owned and maintained by the same family over decades, transferred to offspring… is generally assessed at a fraction of the current value of the house and land. This typically makes it possible for young adult, and older adult, children of middle class parents, to raise their own children in a safe middle class environment, as well as saving thousands if not tens of thousands of dollars per year.

The type of key financial support that Proposition 13 and Proposition 58 afford home-owning families in California, often helps to keep a tight knit family closer together, to choose to live nearby as opposed to settling for a less expensive and less desirable dwelling, often far away from family. As we often have noticed, multiple home ownership by doting parents often reveal homes that are near each other — thereby preserving an even tighter family bonding fabric, while establishing a safe environment for the parents’ grandchildren to grow up in.

Whereas if children, and grandchildren did not have this form of tax relief enabled by Proposition 13 and Proposition 58, allowing property transfers without crippling property tax increases – they very well may have had to settle for a less attractive, less safe neighborhood, often far away from the parents, and often exposing children to less desirable elements, and school systems.

The most popular, or well known, scenarios affecting peoples’ lives directly in California; qualifying homeowners for a Proposition 58 tax exclusion, including the transfer of real property:

(a) from parents to children;
(b) from children to parents, as individuals;
(c) from grandparents to grandchildren as individuals;
(d) between joint tenants;
(e) from trusts to individuals;
(f) from individuals to trusts.
(g) to or from any child born of the same parent(s);
(h) to or from any step-child, any son-in-law or daughter-in-law; or any child who was adopted prior to age 18.

Naturally, the most popular scenarios enabling qualification for “property exclusion” include property transfer by inheritance, by gifting, or by sale.

Proposition 13 Ongoing Tax Relief for California Homeowners… Preserving Parent’s Tax Base; But – for Middle Class, or Wealthy Families?

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California Proposition 13 ongoing tax relief limits on “assessed value growth” of real property actually maintains ongoing reductions in real estate taxes for homeowners in California. This is basically due to the fact that the market value of most real property in California increases at a faster rate than 2% per year. Therefore, under Proposition 13, the tax rate imposed on most real estate in California winds up being lower than the true market value.

Moreover, under Proposition 13, the longer a home is owned, for example, the more a California property owner benefits – as homeowners continue to pay lower property taxes than they would if their property taxes were based solely on market value… as it would be without the affect of Proposition 13. In California, it’s estimated that 60,000 to 80,000 residential and commercial properties pass from parent(s) to children (frequently elderly parents to their grown children) with additional relief from Proposition 58 – avoiding conventional property tax reassessments, that traditionally use updated property reevaluation to reassess value, and subsequently impose increased property taxes.

As a matter of fact, interestingly enough, from its’ inception in 1978, California Proposition 13 ongoing tax relief has been a tool actually designed to protect elderly homeowners from sharply rising property taxes; and this affects both middle class, upper middle class and extremely affluent property owners. More information on Proposition 13 can be found by clicking here.  Even though some politically motivated folks in California claim that Proposition 13 and Proposition 58 exist as financial tools  mainly to enable wealthy homeowners in California to transfer family wealth to yet another generation… and that across the board, wealthy families benefit the most from Proposition 13 in particular.

In fact, it’s actually common knowledge that many middle class families benefit from California Proposition 13 ongoing tax relief on property, and Proposition 58 regarding property transfers, which you can investigate further by clicking here… The idea that specifically Proposition 13 mainly favors the wealthy is, frankly, an inaccurate assumption. As a matter of fact, the Legislative Analyst’s Office in California has stated that around two-thirds of all Proposition 13 property tax relief goes to folks with yearly incomes in the $80,000 plus range, with most of that property tax relief going to homeowners with incomes in $120,000 plus range.

If we sit back and ponder those numbers for a moment, most of us would agree that incomes in the $80,000 plus per year, up to $120,000 plus, even into the $150,000 or $175,000 to $200,00 per year range (prior to income tax) is not exactly what most of us would classify as “wealthy”.

If we factor in these statistics, most of the homeowners benefiting from Proposition 13 would actually appear to be solidly middle class to upper middle class – depending on the area they live in. Naturally, the more affluent the area, the more modest one’s income range looks, in practical terms. Yet regardless of where homeowners reside, the bulk of people benefiting from the Proposition 13 tax solution are still what most of us would classify as “middle class”. No matter how much politicos manipulate the statistics underlying this issue, you simply cannot classify the bulk of these homeowners as “mostly wealthy”… as some folks claim they are.

For example, if California homeowners living in areas like Palo Alto, Santa Barbara, Malibu, Laguna Beach or Beverly Hills pay less property taxes than folks living in less affluent areas, for instance such as Beaumont, Arvin, Palmdale or Lancaster – this is in fact not due to their supposed wealth, since statistics tell us repeatedly that they are solidly in the 5 to low or even mid 6-figure range at best. And it is hardly some nefarious political plot to provide the more affluent residents of those areas with lower property tax rates through Proposition 13 tax reduction; while intentionally keeping middle class and lower middle class homeowners at higher property tax rates.

In reality, this income issue appears to be mainly due to higher net worth homeowners simply taking better advantage of a tax solution like Proposition 13 – while many less affluent residents in more middle class areas do not. Quite honestly, it really appears to be as simple as that… Therefore, we felt it was worthwhile to set the record straight on this simple, but important, distinction.

GS/01/06/20