Getting the Most Out Of Prop 13 and Prop 19 Property Tax Breaks
Residents in California that Benefit from Proposition 19
Focusing on senior residents and of course wildfire victims in the promotion of Proposition 19 was an extremely clever move by the CA Legislature. The state has been in the midst of another catastrophic series of natural fire storms at the same time that voters were being introduced to the Proposition 19 tax measure; and voters certainly were personalizing what it might feel like to lose their home, in a matter of minutes, to fire… and of course this connection did not go unnoticed by the folks promoting Prop 19.
Proposition 19’s backers ran sentimental, heart-tugging ads and even poured cash into the firefighter’s union. Nonetheless, Proposition 19 only just passed with a little over half of the vote, 51%.
Prop 19 is a positive financial opportunity for seniors, victims of natural disasters and fire storms, and for homeowners with disabilities; or residents that happen to be grandparents that are looking to relocate from one area to another in California, to purchase a house nearer their family, specifically their children. And it’s a positive opportunity for older married couples looking to downsize, or to upgrade to a retirement home.
On the other hand, it is a challenge for many middle class families, that are trying to avoid property tax reassessment; that are keen on establishing a low property tax base; to take advantage of Proposition 13 transfer of property, that wish to transfer parents property taxes when inheriting property taxes. It’s important to most families when inheriting property taxes from a parent, to keep parents property taxes, on any property tax transfer with a parent to child transfer or parent to child exclusion.
Moreover, beneficiaries looking to buyout co-beneficiaries, siblings, are always looking for help in the transfer of property between siblings, to make sure nothing goes wrong — that you can keep your parent’s low Proposition 13 tax base and properly establish a low property tax base when buying out a siblings’ share of a house.
Easy Mistakes to Make, and to Avoid, with Proposition 13 & Prop 19
A few mistakes single homeowners, beneficiaries and property owning families can fall into quite easily:
1) Some families forget to execute a property LLC in order to protect their property from property tax reassessment when they pass away.
2) Some heirs or beneficiaries are not aware that they must file a claim for a “reassessment exclusion” or “exemption” under Proposition 13 inside of three years after the passing of a decedent, and therefore may lose their exclusion from property reassessment. This can be an extremely expensive mistake.
3) Some homeowners mistakenly believe that they are passing on a “principal residence” or “primary residence” but in fact have not resided full time in that home for many years. This will cause expensive reassessment issues for any beneficiaries.
4) Some families believe they can pass on an exclusion from reassessment regarding a multi-unit residential property, even though they only reside in part of the property. This will cause serious issues for any beneficiary or heir.
5) Some heirs or beneficiaries may not understand that they must reside in an inherited property only as a primary residence, under Proposition 19, in order to take advantage of a “parent-to-child” exclusion from reassessment, establishing a low property tax base; once a parent passes away. Non primary residence could trigger reassessment at current market rates.
6) Some families revise the title of their home without consulting their tax lawyer or property tax specialist, possibly triggering property tax reassessment.
7) Some families will include numerous beneficiaries in a living trust, along with listing their home. If some of the beneficiaries are not offspring and some are, your actual children, i.e., heirs, may lose their ability to avoid property tax reassessment.
8) Some families may shift an industrial facility they have inherited into an LLC for business purposes, while renting it out; triggering a property tax reassessment by not filing the proper forms in a timely fashion.
9) A property transfer may occur without proper registration paperwork filed with the state. Twenty years later the new property owner may owe twenty years worth of back property taxes at vastly increased rates. This can be a devastating event, causing the current owner to lose their home.
These laws are complicated and different scenarios can be confusing. Mistakes with paperwork or filing procedure errors can trigger reassessment at current market rates; even resulting in the loss of a home. Another reason why estate lawyers have become so important as of late!
