How Has Prop 19 Changed Inheriting California Property and Home Ownership?

How Has Prop 19 Changed Inheriting California Property and Home Ownership?

How Has Prop 19 Changed Inheriting California Property and Home Ownership?

Proposition 19’s supporters would like to reduce Prop 13’s less attractive elements and implement what they would call, “freeing-up long-term homeowners.” 

Prop 19 is expected to generate increased house sales, as well as realtor and broker commissions, which is why Prop 19’s largest supporter, the California Realtors Association spent $40,400,341 to get Prop 19 passed, and the National Association of Realtors kicked in $4,800,000 to promote such a hard-to-sell property tax measure.  The $100,000 donated by the California Professional Firefighters union to Proposition 19 pales in comparison.

Proposition 13, which passed in a landslide way back in 1978, was a unique amendment to the California Constitution which capped residential property taxes on a primary residence to 1970s levels, capping them at 1% of assessed value (plus local additions, by county).  Assessments were allowed to rise at a maximum rate of 2% per year — even though prices on real estate in California continued to increase in most of the state’s 58 counties.

Properties would be reassessed at current market rates when a total change of ownership occurred, either by death, gift, or sale — when the property in question is “transferred”.  What the CA State Board of Equalization calls a “change in ownership.”  Deceptively simple terminology for a rather complex process; made even more complex these days by varying state taxes and Coronavirus issues, verified at property tax relief websites and niche blogs like Property Tax News or Loan To A Trust.

 Inheriting California real estate and home ownership in general is different now as far as property taxes are concerned.  If a homeowner in any county bought a $2,000,000 home today, without any property tax breaks, they might pay roughly $25,000+ per year in property taxes.  A family in a nearby $2,000,000 home that’s been there for let’s say 30 years may owe merely $2,500 per year.  But it’s all relative.  Certain politicians complain about this type of inequity… however  if you bought property 30 years ago, would the same property cost the same last week?  Of course not.  So why should taxes be any different.  

Under Proposition 19, the only low Proposition 13 tax base that can be transferred to your children is that of your principal residence to your heirs (offspring).  Subsequently,  your heirs have to reside in that home also as   their primary residence.  And if that inherited home is valued at more than $1,000,000 it may be partly or completely reassessed by the local  tax  assessor, with a partial or total loss of their Proposition 13 parent-to-child exclusion property tax break.  It is not entirely clear yet how all of this will shake out once the dust settles on this. 

However the entire concept of installing a property tax hike in the midst of a flagging Pandemic economy with growing unemployment and under-employment; or even the decision by the Legislature to  promote a Proposition 19 tax hike in 2021 — to water down middle class homeowners’ ability to avoid property tax reassessment is under a spotlight and being seriously questioned in light of basic survival, and even retirement, by respected economists, academics and analytical websites.   

In most cases, Proposition 19 will effectively eliminate a parent’s right to transfer a low property tax assessment to heirs, since it is unclear at this point how  many heirs or beneficiaries inheriting their parents’ home will be all that excited about  moving into that inherited home as a primary residence — and within 12 months at that. It may be too small for a large family.  Work places may be too far away to be convenient.  School districts could b e a major issue.  And so on. 

Moreover,  many homes are worth far more than $1,000,000 in California. That makes Proposition 19, despite it’s many positive benefits, a liability for many inheritors… with challenging  outcomes for certain taxpaying residents who have inherited California real estate.

The folks who benefit from Proposition 19 are embraced clearly in its’ promotional title: “Home Protection for Seniors, Severely Disabled and Victims of Wildfire or Natural Disasters Act.”  Exactly what the definition and application of  “severely disabled” is, remains to be seen.  As mostly everything with this particular Legislature, it would be safe to say that there are a lot more assumptions in play here than specific, concrete projections that are backed up by well researched data and factual analysis. 

We can assume that homeowners who are over the age of 55, disabled or supposedly “severely” disabled, who have been harmed by a forest fire or  some other natural disaster of some kind,  will be able to transfer the assessed value of their primary California residence to a new home anywhere within the state’s 58 counties. 

This revised property tax relief procedure may be repeated  three times in a lifetime, supposedly, and so homeowners now have two years to transfer their Prop 13 low property tax base.  And one can still expect (with more limitations now built into the process) to be able to take advantage of trust lenders with a loan to a trust if the goal is to buyout co-beneficiaries (i.e., siblings) looking to sell their inherited property shares, as a transfer of property between siblings, with a loan to an irrevocable trust. 

So no matter what, at least for the moment, Californians can still make good use of a property tax transfer from a parent, a Prop 13 low property tax base — under the CA Proposition 13 transfer of property — and transfer parents property taxes, with the sole objective to   keep parents property taxes regardless, when inheriting any kind of property more or less, and inheriting property taxes under California’s parent to child transfer, known as the  parent to child exclusion — which has been the number one target anti property tax relief parties want to  water down, or even repeal.                

Additionally,  if the homeowners’ new house is assessed at a higher value  than their previous home — their property taxes might go up, however not  as high as they would have been before Proposition 19 went into effect. So there is helpful property tax relief here if you look for it, such as being able to establish a Prop 13 low property tax base.  It is just not quite  as simple and straight-forward as it once was, before Proposition 19 more or less replaced Proposition 58 in the sunny state of California, in Nov. of 2021. 

Strengthening Proposition 19 Property Tax Relief During a Pandemic

California Prop 19 Property Tax Transfer

California Prop 19 Property Tax Transfer

In the midst of a relentless Pandemic, causing untold economic carnage, unemployment and financial damage  to middle class Californians, it would be advisable for the state to provide middle income and working class residents with the ability to not only make more money, if that were to be possible,  but to be able to spend less.

One proposed solution to accomplish this – proposed by respected real estate analysts and property tax consultants – would be expanded property tax relief; despite certain limitations and obstructions from special-interest groups and changes to Proposition 58.   Proposition 19 property tax breaks should most likely be strengthened in favor of property owners, with a robust initiative led by the Governor – rather than an unhelpful deferred property tax payment plan, such as he has already suggested.

Forward thinking tax consultants such as property tax consultant, Proposition 13 specialist, Michael Wyatt Consulting have proposed property tax breaks that save homeowners, commercial property owners, and beneficiaries inheriting property more money from property tax breaks than are currently in place.   

Well known Trust and Estate Lender  Commercial Loan Corp, furnish trust beneficiaries with irrevocable trust loans, working in conjunction with Proposition 19 benefits, can establish a low Proposition 13 property tax base for homeowners, and save inheritors thousands of dollars every year in property taxes.

These property tax reduction measures – as long as homeowners make good use of them and keep inherited property, or allow other siblings or co-beneficiaries to buyout their shares  of inherited property through a trust loan working with Prop 58 tax breaks – will avoid property tax reassessment.  This process will, in fact, create a low property tax base for the singular owner or owners of this shared inherited property.  And there indeed is one solution to enable homeowners to spend less.  

This helps middle class property owners and working families to not only spend less, but also to retain more cash in  their bank and investment accounts. Most importantly, this type of trust loan financing also helps trustees and beneficiaries resolve disputes  over assessor stated property values – as well as resolving often heated conflicts over whether they should sell to an outside buyer, or profit more by allowing a co-beneficiary to buyout their property shares while avoiding property tax reassessment of this family property altogether. As realtors call it, “transfer of property between siblings” or “sibling to sibling property transfer” – lending money to an irrevocable trust, for trust loan financing  – can resolve various squabbles and infra-family problems between estate heirs and trust beneficiaries. 

Noted originator of trust loan financing, Commercial Loan Corp President Kerry Smith; and other outspoken supporters of property tax breaks for the middle classes, such as Property Tax Relief Consultant Michael Wyatt,  Jon Coupal, President of the Howard Jarvis Taxpayers’ Association; and Paramount Property Tax Appeal President Wes Nichols, have all stated, repeatedly, that Proposition 13 and Prop 58 should be better protected and expanded; That Proposition 19 should be expanded to better serve homeowners; and at the same time strengthened in the courts so Amendments that can potentially wipe out property tax breaks like Proposition 58 for example, in a single vote, will be impossible to advance without a great deal of trouble and expense.

California, since 1978, is the only state where you can avoid property tax reassessment at current rates; but the state does need to better protect, not water down, residents’ property tax relief options; to keep parents property taxes… and to transfer parents property taxes as well as inheriting property taxes at a low base rate for even a secondary inherited property.

Avoiding property tax reassessment is a crucial tax relief element, and therefore should be better  protected, for new homeowners and beneficiaries inheriting a home and/or buying out a sibling’s share of inherited property   the transfer of property between siblings, sibling to sibling property transfer, the right to transfer parents property taxes when inheriting property taxes – so beneficiaries can keep parents property taxes at its’ original low base rate… which applies to every  property tax transfer,  meaning every parent to child transfer and family parent to child exclusion.

Helpful information on Proposition 13 & Prop 58 as well as property tax appeals and property tax reduction solutions can be found at niche Websites like the CA State Board of Equalization and here at Property Tax News.  Or look carefully at various sections and articles at Loan to a Trust or at  detailed, more sophisticated trust loan info-websites.  Every property owner should know what’s involved with inheriting property taxes at a low rate, or a beneficiary buyout of sibling property shares, or “transfer of property between siblings” – with new, revised Proposition 19 basic property tax relief opportunities that are available to Californians, come rain or shine.