Monthly Archives: November 2021

Tax Basis Portability & New CA Property Tax Relief Benefits

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Although a parent-child transfer exemption or exclusion, and related CA property tax relief benefits have no age restrictions — tax basis portability is available only to homeowners that are age 55 or older as of their home-sale date.  You are eligible if you are significantly disabled, or your home has been severely decimated or damaged by wildfire or a natural disaster.  Moreover, a replacement residence can be bought before the original home is sold.

Tax Basis Portability and Taxable Value

As of April 1, 2021 homeowners in California can now transfer the “taxable value” of their primary residence to a “replacement primary residence”.  Just as a parent-child transfer exemption is available in all counties; this too can happen anywhere within all 58 counties, in two years or less of the sale of the original property;  without any County restrictions as there were before Proposition 19 came about. This can be done up to 3 times, with no restrictions for homes that have been badly damaged or destroyed by wildfire, for instance the type of forest fire that we have seen lately destroying property throughout the state.

It’s not that complicated.  Say your home has an assessed value of $400,000 and you sell your home for $600,000 – and then purchase a new house for $550,000.  Rather than a new reassessed value of $550,000, you can apply to the Tax Assessor to have the value of your new home reset to the original $400,000 assessed value. This could save you roughly $1,800 every year in property taxes.

“Tax basis portability” in California is a way to lower the assessed value of your house. Hence , in plain English, your property taxes will go down.  Your property tax total for the year is usually a direct reflection of your home’s assessed value. And this impacts the sale price of course, if a home is being sold. When you own and reside in your home as a primary residence, your assessed value goes up at a maximum in California by only 2% every year. With tax basis portability, you can transfer the former assessed value of your home over to your next home.

New California Board of Equalization Clarification

The Board of Equalization has now clarified this question in May of 2021, and stipulated that there is no requirement for a homeowner to be the sole owner of an original primary residence or a replacement primary residence if he or she is age 55 or older, significantly or permanently disabled, or who is a victim of a wildfire.  Hereby adding more  flexibility to tax breaks that existed previously, along with a newly imposed right to take advantage if these particular tax breaks in any county in the state.

This was formerly not possible, and one was limited to a specific number of counties. These older rules limited the location of the properties. Proposition 60 restricted tax basis portability within one county. Proposition 90 expanded that to several counties, allowing you to sell property in one county and purchase property in another, but only if they were on the approved county list.  With the advent  of  Proposition 19, instead of limiting the counties of transfer, you can use this benefit anywhere in California — a major improvement.

Propositions 60 and 90 and 110 Expanded

Proposition 19 grants more freedom over the older Propositions 60, 90, and 110. There are no more county restrictions or sales pricing  restrictions, and people can use the benefit more than once.

Proposition 19 Removes Restrictions on Home Sales Pricing

Under Propositions 60 and 90, only transfers of “equal or lesser value” were eligible for tax basis portability. Proposition 19 allows the transfer of tax basis no matter what the value is. However, there needs to be  specific adjustments to the tax basis should the sale price of the replacement residence be more than the sale price of the previous residence.

Equal or Lesser Value

The tax basis can be transferred as long as the replacement residence is of equal or lesser value. There can even be an inflation index of 105% if purchased inside of 12-months, and 110% if bought  within the second year of the sale of the initial property.

Lower to Higher Value

Under Propositions 60 and 90, if the replacement residence had a higher market value, you weren’t eligible for the benefit. After the advent of Proposition 19 you are still eligible for tax relief.  If you sell your primary residence that is currently assessed at $300,000 for $500,000, and you buy a new house for $600,000 the increase in price of $100,000  also increases the assessed value of the first house…

So the math would look something like this: $300,000 plus $100,000 equals  $400,000 — the new assessed value. Therefore, rather than getting hit with property taxes that are based on $600,000 you pay a tax rate that is based on $400,000.  A significant difference.

Proposition 19 Benefits: Numerous and Expanded Uses 

Proposition 19 now allows up to three tax basis transfers during a lifetime,  even if you have transferred your tax basis in the past; and    for homeowners who have lost their primary residence in a wildfire there are no limitations. Even if you have already used Proposition 60 or Proposition 90 to avoid property tax reassessment it isn’t factored in to the three transfers you’re permitted with Proposition 19. 

Likewise, with Proposition 19, new homeowners or beneficiaries just inheriting a home from a parent  have up to a year to move in to their inherited home as a primary residence and can use a property tax transfer without any issues to avoid property tax reassessment when they transfer parents’ property taxes over to themselves, typically taking advantage of a parent-child transfer exemption — namely a parent-to-child exclusion, now being able to keep parents property taxes basically forever.

Inheriting property taxes under a parent-child transfer exemption and other, newer, rulings — although a little more limited than before — still ends up providing middle class beneficiaries in California with a low parent to child property tax transfer on an inherited home, plus an opportunity to buyout property shares from co-beneficiaries with a 6 or 7-figure trust loan working in concert with  Proposition 19 furnishing siblings with a good deal more buyout cash than any normal outside buyer would offer for the same property with a realtor and a bank involved, plus an inherited home can still remain in the family as a valuable financial and sentimental asset; affording working families lower taxes from genuine property tax relief.

New Access for Homeowners to CA State Board of Equalization & Property Taxpayers’ Bill of Rights

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Due to various changes  right now in California’s property tax relief laws, Proposition 19 is expanding certain tax breaks while limiting others;  creating new issues involving homeowners; often bringing their attorney or trust lender into the mix, for example utilizing Prop 19 and funding to a trust loan; as well as newer tax breaks, verified through direct communication with the California State Board of Equalization (BOE).

CA State Board of Equalization Aiding Homeowners

Right now, as 2021 moves into 2022, if problems with property owners deepen, Taxpayers’ Rights Advocate – Lisa Thompson gets involved. The Advocate was appointed by the CA State Board of Equalization Executive Director Brenda Fleming, to work independently of the BOE, to help taxpayers resolve problems that cannot be resolved through conventional channels – making sure homeowners understand every avenue designed to help them avoid property tax reassessment as far as property tax breaks are concerned…

It’s important for the Advocate to help homeowners understand how to use the BOE to confirm and use every possible tool at their disposal when transferring property taxes from parent to child is critical in order to keep parents property taxes after a property tax transfer, upon inheriting property taxes from a parent-to-child property tax transfer  –  and understanding how to work with a trust lender to take advantage of a parent-to-child exclusion from current tax rates… Often working in conjunction with Prop 19 and funding to a trust loan, when homeowners (i.e., beneficiaries) buyout inherited property from co-beneficiaries, while keeping a parents low property tax base.

The CA Taxpayers’ Rights Advocate

The Taxpayers’ Rights Advocate is allowed to involve the Morgan Property Taxpayers’ Bill of Rights, which allows the property owner to inspect and copy documents related to their property’s assessment. The Bill of Rights furnishes measures to encourage and verify fair administration of property tax laws in California.

The Advocate reviews how fair and effective the BOE and any given County Assessor is in terms of providing understandable information in printed and Website form to property owners; making sure the BOE  is doing their job properly; resolving complaints, taxpayer problems and general inquiries from the public such as how to use a parent-to-child exclusion, Prop 19 and funding to a trust loan.

The Advocate also looks for underlying causes of conflict between taxpayers and property tax assessors. The Advocate is responsible for creating and distributing a yearly report concerning property tax issues and property tax hikes affecting taxpayers’ rights. To support this, the BOE has public hearings to review this report and related property tax matters, opening up these meetings for questions and opinions from business property owners and homeowners.

The Property Taxpayers’ Bill of Rights provides ways to encourage and verify fair administration of property taxes.  Miss Thompson tells us:

“We can help if you have a question regarding your rights or if you have a disagreement with the programs administered by the State Board of Equalization, or county agencies involved in California’s property tax system. Some taxpayers contact us to communicate their frustration with aspects of the property taxation system or seeking confirmation that they have been treated lawfully and fairly by a county or state office…

In cases where the law, policy, or procedure does not allow any change to the staff action, but a change appears justified, the Taxpayers’ Rights Advocate Office is alerted to a potential area that may need clarification or modification. Several past recommendations for policy, procedural, and legislative changes have resulted from these types of contacts with taxpayers…

Our office facilitates communication between taxpayers, the State Board of Equalization, and county staff to eliminate potential misunderstandings. Taxpayers are provided information on policies and procedures so they can be better prepared to discuss their issues with the appropriate staff and increase the opportunity to affect a resolution which will satisfy them.”

As you can imagine, Advocate Lisa Thompson bolsters public confidence in the BOE and the office of The Taxpayers’ Rights Advocate.

Helpful Contact Info for a Property Tax Transfer on an Inherited Home

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Property Tax Transfer in California

Property Tax Transfer in California

Commercial Loan Corp – (877) 756-4454 – cloanc.com

As most property owning Californians are aware in 2021, both time-honored and new cost-cutting property tax breaks are accessible to home owners over age 55, who have a severe disability, or who are verified victims of a natural disaster or forest-fire – as far as new property tax breaks are concerned.

Moreover, when inherited property is in an irrevocable trust and additional cash is required to make fair and equal distribution to all beneficiaries determined to sell their inherited property shares – a trust lender like Commercial Loan Corp is where such beneficiaries go for irrevocable trust funding, along with getting help from the firm to work in conjunction with Proposition 19; to insure inheriting a low property tax base, to avoid property tax reassessment both in the short and long run.

This process also allows beneficiaries looking to keep an inherited home to buyout inherited property from siblings at much higher rates than any outside buyer would offer, given that there is no realtor involved, with their 6% fee; and no pricey legal bills and ancillary costs associated with an outside property sale. It costs beneficiaries less in every respect with a Proposition 19 trust loan from Commercial Loan Corp, then it does if they were to use their own cash to complete the property transfer process, to insure inheriting a low property tax base.

Senior Account Manager – trust loan and property tax relief specialist – Tanis Alonso recently shared her viewpoint on this process with us recently. She explained as follows:

“Let’s say a property value is currently one million dollars and the current tax base is $1,200. If they were to get reassessed at current value that would be around $11,000 annually. By someone keeping the property and obtaining a trust loan to properly buy out their siblings that allows the beneficiary that is keeping the property to keep parents property taxes, to retain 100% of the Proposition 13 tax base that was paid by their parents and keep that low property tax base of $1,200.

This of course creates much greater affordability than if they were to improperly buy out their siblings and have that property reassessed. The loan to trust goes hand in hand with the Proposition 58 property tax transfer system, creating enough liquidity to equalize distributions, not sell, and allow a beneficiary to keep their parents property with their low property tax base.”

“Commercial Loan Corporation loans to trusts give our clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America. Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients. Compliance for both commercial and residential property owners is far less strict. Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying interest on their trust loan in advance.

The speed of their trust loans is much faster, typically five to seven days instead of two or three weeks. And if you sold a property outright, without using a trust loan, you have closing costs, legal fees; a commission; etc. It gets very expensive. Going with a firm like Commercial Loan Corp – all costs are offset, unless you plan to keep a property for 2 or 3 years or less. Then it doesn’t make sense. But generally you’re looking at keeping that property for seven or more years, as a rule.”

Cunningham Legal – (949) 386-1340 – www.cunninghamlegal.com

Rachelle Lee-Warner Partner & Managing Attorney for Estate Law and Trust Administration at Cunningham Legal, although a well known Trust and Estate Attorney, also functions to a some degree as a property tax consultant. No matter how many people she helps, Miss Warner never loses sight of the fact that no two cases—or people — are alike; and sums up her role as follows:

“I want to be known as an attorney who treats each client like they are my only client. Each situation is unique and each client deserves to be heard and offered the assistance we can provide. I often meet with clients who are in the midst of stressful and emotional situations. Whether it be the declining health or loss of a loved one, my goal is to be a voice of reason, a calm presence, and an encourager through the process. Helping these clients gives me purpose in my career.”

“One of my clients was in hospice care and had an A/B trust with property in the B Trust carrying significant gain since her husband had passed away,” offers Rachelle as an example. “If left intact, her daughters would pay hundreds of thousands in capital gains taxes. I was able to get an ex parte petition filed and granted within two days to eliminate the capital gains taxes for her daughters. My client died a few days later, and her daughters were so grateful we sprung into action to save them money and give their mother peace in her last few days.”

After two pivotal events in my life — becoming a mother and losing a parent — my perspective shifted events helped shape me to understand more clearly the perspective of my clients and my clients’ needs.”

2021 Update: Property Covered or Not Covered by CA Proposition 13

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CALIFORNIA PROPOSITION 13

CALIFORNIA PROPOSITION 13

Despite wide coverage afforded by Proposition 13 property tax relief,  in which certain California property tax exemptions substantially reduce the tax burden for many thousands of residents throughout the states’ 58 counties – assessment of some personal property and certain real estate categories in California are not impacted by Proposition 13 property tax relief at all. 

And yet some properties and items are partially exempt from paying  full freight on up-to-date fair market property tax rates, such as historical aircraft; so-called livestock; most burial plots; nonprofit colleges and schools; large vessels and low-cost boats; free libraries; free museums; and art galleries.

Below is a summary of other commonly used, popular Proposition 13 assessments with updated BOE rulings for 2021 forward, along with those items that are not assessed for property tax exemption…

Homeowners’ Exemption
There is a one-time filing with the County Assessor for this exemption. The Homeowners’ Exemption requires a $7,000 reduction of taxable value for owner-occupied principal residence homes. As most Californians know by now, rental properties and vacation properties are not exempt. Moreover, California does reimburse local-agencies for any lost property tax revenue.

Disabled Veterans’ Exemption
Requiring a one-time filing, veterans that are affected by a medically verified disability – or a deceased veteran’s unmarried surviving spouse – have access to a property tax exemption totaling $100,000 for one primary residence. If a veteran has an income not exceeding $40,000 this property tax exemption can be increased to a $150,000 exemption, which requires a formal yearly filing. Naturally, the income limit and exemption dollar amounts are adjusted for inflation every year.

Business Inventory
Sold or leased personal property used for normal business activity is considered to be exempt in California, without any filing requirements, however with the possibility of audits by the County Assessor for verification purposes. This exemption covers business inventory such as standard products for sale or lease, animals used in the production of food, and related supplies of which the cost is added to the consumer retail price. The exemption does not cover property that was in use on the “lien date”, with the exception of animals and normal supplies.

Crops, Trees, and Vines
Crops grown locally are exempt, and filing is not necessary. Date palms under eight years of age are exempt; along with grapevines, which are exempt for the initial first three years; as well as orchard trees, which are exempt for the first four years after the initial season in which they were planted.

Religious Exemption
As many Californians already know, buildings, personal property, and land used exclusively and only for religious purposes are exempt from paying standard current property taxes; requiring yearly formal filing with the County Assessor. With any other use of that property, this religious exemption becomes null and void, and reverts to non-exempt status.

Welfare Exemption
The so-called “welfare exemption” covers real estate that is owned and utilized for religious, hospital, scientific, and/or charitable purposes. The California State Board of Equalization extends a one-time decision on whether or not an organization providing any of these specific services is actually able to take advantage of this sort of exemption – with a yearly revisit from the County Assessor to re-determine if the property is still being utilized for any of these specified purposes and therefore still exempt.

Personal Effects
Exemptions are afforded to household furniture, equipment used for hobbies, and numerous other personal effects that a tax attorney or accountant can verify; without filing. What is not included under Prop 13 are vehicles, airplanes or boats worth over $400. Also not exempt are properties in use for business or a trade of any kind.

Intangible Personal Property
A good deal of what is referred to as “intangible personal property” such as cash, bank accounts, mortgages, and stocks are exempt under Proposition 13; without having to file any documents or forms.

“Low-Value” Property Tax Exemption
Real estate, homes and land, with a base year value and personal property with such a low value that, if not exempt, taxes and assessments on the property would be less than what it would cost to actually assess and collect these taxes. A county board of supervisors have the authority to authorized this type of property tax exemption in California – with a value threshold of $10,000 or under. With one exception – namely, that the $10,000 value threshold is accelerated up to $50,000 for “possessory interests that are for a temporary and transitory use in a publicly owned convention center, cultural facility, or fairground”.