What Brought About CA Property Tax Relief & Where is it Going?

Posted on December 17, 2021 by trustandestate

California homes are valued at high prices these days, and frankly most of these properties do seem to retain their high value, in comparison to lower-priced homes in many other states, for example in the Midwest, in the Deep South… way up north in New England, Vermont, Maine and New Hampshire, where families can purchase a multi-bedroom home on an acre or two of land in a decent neighborhood for a very reasonable price, at low 6-figures.

Proposition 13 and the Statewide CA Property Tax Rate Cap

Even so, many California homes now have a “taxable value” that is lower than the average American market value (i.e., in other states). However, these values are deceptive as this is only due to Proposition 13 being voted into law in 1978, holding back the taxable value of property from going up higher than 2% per year, regardless of the increase in the overall average American market value; until, that is, property changes ownership.

Proposition 13 cut the statewide property tax rate to 1% of a home’s taxable value, down from a statewide average of 2.67% to 3%, give or take. Of course, what many Californians don’t realize is that this tax relief for homeowners also holds rental prices down, as apt. building owners, landlords, are spending less on property taxes themselves, therefore are less inclined to go up in rents.

As many of us know, property values were increasing in the early to mid 1970s in California, and business property owners as well as homeowners were suddenly victims of consistent property tax hikes, and artificially escalated property values, when until then you could buy a lovely middle class property at a very affordable rate – almost anywhere in the state, other than certain obvious high-end enclaves, such as Santa Cruz, Santa Barbara, Sausalito, Beverly Hills, Malibu, etc.

Public Push-Back Against Property Tax Hikes

Residents like retirees, middle class widows, veterans and elderly folks with fixed incomes, were basically living on government pensions or social security and perhaps a few stock dividends kicking in here and there. The problem was, from a Californian public relations point of view – folks living on these modest fixed incomes were all of a sudden losing their home to egregious property tax hikes… And public anger was rising to a fever pitch by 1976, 1977.

By 1978 this dissatisfaction among middle class and upper middle class families – against artificially escalated, unpredictable property tax hikes rose to such a fever pitch throughout California that property tax relief, in the form of Proposition 13, was an inevitable outcome. Largely due to the efforts of wealthy apt. building landlord Howard Jarvis and his “Taxpayers’ Revolt” – and this put a stop to homeowners hemorrhaging cash every year on property taxes.

Prior to Proposition13 the state was growing in leaps and bounds, becoming more affluent by the decade; therefore large homes and business properties were being purchased by the middle and upper middle classes – and inherited from parents – which subsequently triggered a “change in ownership” and thus property reassessment.

Therefore the resulting property taxes were high enough to be called estate taxes, and often caused middle class families to sell their home, as they simply could not afford this type of property taxation any longer. Put quite simply – it was unsustainable. Which is precisely why Howard Jarvis and Proposition 13, and later the ability to transfer CA property between siblings, came about in the first place.

Proposition 58 and the CA Parent-Child Exclusion are Born

By the 1890s property owners in the state were getting used to property tax relief, and wanted more. So in 1986 the California Legislature voted with a huge majority to place a measure on the ballot called Proposition 58, to exclude parent-child transfers of property from the legal definition of “change of ownership.” And the right to transfer CA property between siblings, along with parent-to-child exclusion, was born… adding to the popular suite of tax relief benefits furnished by Prop13.

This tax measure (which has completely morphed into Proposition 19, with additional tax breaks), used in conjunction with a loan to an irrevocable trust, made the right to transfer CA property between siblings, also called “a sibling-to-sibling property transfer”, possible – so beneficiaries looking to buyout inherited property shares from co-beneficiaries could easily do so, while establishing a low property tax base, when inheriting a home from parents… when inheriting property taxes.

Heirs were now able to transfer parents property taxes, to transfer CA property between siblings (through a trust loan) and keep parents property taxes from a now standard property tax transfer – which attorneys call a Parent to Child Property Tax Transfer… plus for the first time the right to avoid property tax reassessment during an inheritance – and this was actually normalized. Which was incredibly important to middle class homeowners all across the state of California, who were previously struggling to make it every year, with heightened property taxes always looming over their heads. This was causing a growing state of anxiety, county by county.

This also meant that when homes and small business properties were inherited the property tax bill would not be affected. Proposition 58 was approved by more than 75% of voters statewide. In fact voters soon thereafter passed Proposition 193 to extend the same rules to transfers between grandparents and grandchildren, as long as the children’s parents were deceased.

Of course, as with everything else, certain malcontents (the realtor community among them), simply couldn’t stand to see that many people benefiting from a good thing, and so decided to unravel it, get more property tax revenue into the state coffers, as well as increase real estate sales commissions!

California Realtors Finally Deal a Blow to Property Tax Relief

In 2020, backed largely by the powerful California realtor community, with the CA Legislature stepping in to provide political cover, “Proposition 19” was created to take a large slice of that tax relief back from homeowners – yet appealed strongly to homeowners over 55, the elderly, folks with infirmities, and victims of natural disasters, fires and earthquakes, all who benefited nicely from a host of attractive property tax relief benefits!

Although, many voters (now experiencing buyer’s remorse) did not fully realize that Proposition 19 took away some of the protections afforded by Propositions 58 and Prop 193, and replaced them with a more limited exclusion from property tax reassessment. Many middle class and upper middle class Californians who have worked all their lives to own a home to pass down to their children are finding that their plans have been upended by Proposition 19. Due to the increase in property values, reassessment of inherited properties to current market value will force some homeowners to sell because they can’t afford to pay the higher tax bill every year.

Which is exactly why the spirit of Howard Jarvis reared up its’ head again, in the form of the Howard Jarvis Taxpayers Association organizing volunteers to collect signatures to try to repeal the “death tax” portion of Proposition 19, without changing the provisions that protect seniors and wildfire victims. To qualify the measure for the November 2022 ballot, nearly a million valid signatures of registered voters are needed. Deadline to submit signatures is 4/29/22.

Once again the middle and upper middle classes, along with the elderly, have powerful allies in California!

Taxpayer’s Association Summation of Efforts to Protect Tax Relief:

“Early organizing will be essential if the effort to repeal the death tax is to succeed. The Howard Jarvis Taxpayers Association (HJTA) is shifting into high gear, with all hands on deck, signing up volunteers and spreading the word at https://reinstate58.hjta.org/#volunteer The Taxpayers Association is sponsoring a Bill entitled “Senate Bill 668”, introduced by Sen. Patricia Bates (of Laguna Niguel) – which would, if passed, continue to protect your grown children, and theirs, against tax hikes should they inherit your home, which attorneys have a fancy name for – i.e., “intergenerational transfers of property” (up to Feb 16, 2023).

Proposition 19’s changes to the tax treatment of inherited property took effect in February, leaving Californians little time to consult with family members, attorneys or tax professionals to plan for these sudden, harsh changes to property tax liability for the next generation.

HJTA also supports a constitutional amendment to reinstate Proposition 58 (1986) and Proposition 193 (1996), two measures that were overwhelmingly approved by voters to protect family property from reassessment when passed from parents to children or grandparents to grandchildren. Assemblyman Kevin Kiley (Granite Bay) is working with HJTA on final language for an Assembly Constitutional Amendment that would restore these protections.

California voters have strongly opposed state inheritance taxes, which were abolished by constitutional amendment in 1982. Proposition 19 has effectively resurrected the inheritance tax in California, with the added burden that families must pay it every year as a condition of keeping their property.”

And once again the middle and the upper middle classes plus the elderly in California have powerful friends and allies stepping up into the spotlight to protect their homes, their security and their well being!

Establishing a Low Property Tax Base in California

Posted on December 16, 2021 by trustandestate

Property Taxes in California

Establishing a Low Property Tax Base ~ Who to Turn to in 2022

It’s always interesting, with respect to estate funding and inheritance financing, how different schools of thought come up with different solutions for saving money on property taxes, for out-of-the-box funding solutions against inheritance assets, and for mortgage capitalization.

Name brand name lenders, setting the tone for most lenders in California, such as Quicken Loans, e-Loan, Wells Fargo and Bank of America – are admittedly all high-end, reliable finance-information and lending sources. Yet – when it comes to important income tax or property tax matters, or inheritance funding solutions – their editors and writers, talented as they may be, still only nibble around the edges on anything but the most conventional, largely ineffective solutions.

For example, where tax relief is concerned these firms typically dance around the critical issues associated with property tax exemptions, establishing a low property tax base, or avoiding property tax reassessment – when inheriting a home in any of the 58 counties in California. So who do we turn to for help?

Many property owners embrace basics, and enlist assistance from established property tax experts such as Rachelle Lee-Warner, Esq. — well known Partner, Managing Attorney & Trust Administration / property tax relief expert at Cunningham Legal. Or a reliable trust lender like Commercial Loan Corp, led by inspirational CEO, Kerry Smith in Newport Beach – specializing in irrevocable trust loans, avoiding property tax reassessment and establishing a low property tax base – for middle class California families… guiding them through while showing them all the new advantages that Proposition 19 offers. Perhaps not as generous as Proposition 58 might have offered… however, lowering property taxes to a greater degree than you might think.

Avoiding Poor Solutions and Time-Wasters

With regards to lowering property taxes — these are typical solutions from “expert websites” that homeowners might not want to take very seriously, or avoid completely…

Limiting your “home improvement” projects;
Researching nearby neighborhoods for pricing and home values;
Asking uninformed young attorneys or relatives (to save money) if you qualify for tax exemptions;
Walking around your neighborhood with your Tax Assessor;
Checking your tax bill for inaccuracies;
Getting a second, third and fourth opinion from unproven Assessors and property tax consultants;
Meeting with your local Tax Assessor to convince him/her to revise your tax bill;
Researching and filing a property tax appeal challenge with your County Tax Assessor without a professional property tax appeal firm – on your own, simply to save money.

Checking for inaccuracies, or getting a second opinion isn’t a bad suggestion. But walking through your house with your local Tax Assessor? Researching prices around your neighborhood? With all due respect to the financial websites that hand out this kind of advice, these suggestions would be laughable – if they weren’t so serious. Limiting your home improvement projects – to lower your property taxes?

Effective Solutions with a Tax Professional or a Trust Lender

We will never be free from property taxes while we own our own home, but one does need to be on the there are a few simple “tricks” you can use to lower your property tax bill, as certain websites claim.

We can investigate comparable homes in our neighborhood for “discrepancies”. Never making any changes to our property exterior right before a tax assessment, as this can increase the value of our property; hence increase our property tax bill.

Or, we can stroll around our house and chat with our Tax Assessor during our yearly assessment. That makes a lot of sense. Lastly, we can look for local and state exemptions, and, “if all else fails, write up and file a tax appeal to lower our property tax bill” so suggests a well known financial site. Listen, if we’re going to file a property tax appeal with a County Tax Assessor, we’d be a lot better off doing it through a professional property tax appeal firm.

If we want to address this issue seriously, and not simple throw silly and unrealistic suggestions out there simply to see what sticks – we have to look at realistic opportunities to take advantage of.

For example, if we’re an heir of an estate, or a trust beneficiary inheriting a house from our Mom or Dad – and the house is in an irrevocable trust – a loan to an irrevocable trust from a trust lender is likely required if the trust does not contain sufficient cash to make an equal distribution to all of the co- beneficiaries looking to sell off their inherited property shares. This is frequently taken advantage of by beneficiaries, perhaps like yourself, who intend to keep a home inherited from a parent at the original low property tax base.

A loan to an irrevocable trust makes it possible to buyout inherited property shares from co-beneficiaries and greatly speeds up the trust distribution process. A trust loan also saves a great deal of money when you compare selling the family home through a realtor or broker receiving a 6% commission, plus legal fees, and other closing costs.

Inheriting Parents’ Home While Keeping Their Low Property Tax Base

Bottom line, avoiding property tax reassessment and establishing a low property tax base by transferring property taxes, are property tax relief benefits available to all property owners in California, protected by Proposition 19 & Proposition 13. This should always be taken full advantage of. You can transfer parents property taxes when inheriting property and inheriting property taxes – and keep parents property taxes basically forever, establishing a low property tax base with Prop 19 benefits as well as taking advantage of a trust loan buyout of property inherited by siblings. Why not? It’s your right. Plus, there is no better time than the present to become better acquainted with the parent to child property tax transfer.

This type of property tax transfer is at the foundation of property tax relief for all Californians, generally through a parent to child property tax transfer on an inherited home – usually referred to as a Prop 19 parent-child transfer or parent-to-child exclusion… all the way to a transfer of property between siblings through a loan to an irrevocable trust, in conjunction with Proposition 19 – with an entire year to settle in to an inherited principle residence, or multiple residence (although only one heir is actually required to lock this tax relief benefit in). As long as the parent leaving that property to heirs resided there as a principle residence as well – which is usually the case anyway.

Using a Trust Loan to Establish a Low Property Tax Base

Buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base is a popular avenue for many families. Not only that, if your siblings are receiving funds from an irrevocable trust to sell their inherited property shares, they would receive far less money getting cash from an outside buyer, as opposed to funds from an irrevocable trust. The costs associated with preparing a home for sale, expensive realtor fees, and potential closing costs associated with selling an inherited home can be incredibly expensive.

When a trust loan is used to facilitate a trust distribution, each beneficiary receives an average of an additional $15,000.00 in distribution when compared to selling the home. The person keeping the family home also benefits – saving $6,200+ per year in property tax savings – simply by avoiding property tax reassessment on a nice old inherited home from Mom and/or Dad.

Voters passed CA Proposition 19, just squeaking by with a handful of votes from confused voters in Nov of 2020, and the tax measure became active on April 1, 2021. If you want to intake good advice and avoid mistakes, have property tax experts carefully walk you through Proposition 19, and Proposition 13.

Most middle class and upper middle class California homeowners probably have heard about Proposition 19, the new property tax law that allows seniors and disabled homeowners to keep their current property tax rate when they sell their home and buy a new one. But they may not know how to apply this new law when moving to a new home.

It’s the state’s largest expansion of property tax benefits in decades, basically allowing qualified homeowners to take their Proposition 13 tax base with them anywhere in the state, no matter the price of their new home.

Helping California Middle Class Homeowners Avoid Property Tax Reassessment

Under Prop. 13, tax hikes are capped at 2% a year, meaning the longer you own your home, the lower your property taxes relative to the market value of your home. But some homeowners lose their Proposition 13 tax break when they sell their old home and see their new tax jump to the full market value of their new one.

If you are 55 years or older, a person with a severe disability or a victim of wildfires or natural disasters, you can move to any home in the state, regardless of the home’s price. Your tax is unchanged up to the value of your old home. If your new home costs more than your old one, you pay an additional amount based on the market value over your old home’s price.

When you’re used to a low property tax bill, it can be a shock to your monthly expenses when buying a replacement home includes a huge property tax increase – especially if you have lived in your current home for many years.

Some older middle class homeowners feel trapped because they can’t leave their current home, even if it no longer fits their needs, because they are on a fixed income like Social Security, or a modest pension or military retirement, and can’t afford to move. Taking advantage of Proposition 19 may appear challenging. But as time passes, more and more tax assessors are providing online links to forms and resources to help homeowners understand how to benefit from these new property tax rules and regulations.

Does a Change in Ownership Affect CA Property Taxes?

Posted on December 16, 2021 by trustandestate

California Change in Property Ownership

Californians who make it their business to know – now understand that triggering property tax reassessment to “a new Base Year Value” as a result of new construction to a home, or a complete change in ownership – which makes it virtually impossible to establish a low property tax base; and results in a yearly tax rate that increases abruptly to current or “fair market” rates.

Translation in everyday language – you pay much higher property taxes every year. For example, the different between $600 per year and $9,000 per year. Significantly higher property taxes.

Every County Tax Assessor in California, in all fifty-eight counties, records and reviews every single property deed in every county, to figure out which homes and various other real properties require reappraisal, and which do not. The Tax Assessors also determine ownership changes with other investigative tools such as such as kept records from homeowner self-reporting, or from records of building permits; from newspaper files; or field inspections.

When a County Tax Assessor has determined that a property has changed ownership, Proposition 13 stipulates that the County Tax Assessor must reassess that property to its current (i.e., fair market) tax rate, as per the date of change of ownership.

Because property taxes in California are based on a property’s assessed value – at the time of acquisition – the property taxes will be increased if the current market rate is higher than the original assessed Prop 13 base year value adjustment. Therefore – if the current market tax rate is lesser than the previous adjusted base year value assessment, then taxes on that property will go down. Which is what everyone wants.

It is important to note, however, that a portion of ownership of that property may be reappraised. Let’s say that 50% of a home is transferred under Proposition 13, and the changes that the Tax Assessor is going to reassess is 50% of the home at the current market rate, as per the transfer date, so 50% will be deducted from the base year value, under Proposition 13 property tax relief…

Typically, when someone buys a home, the home goes through a “change in ownership” and 100% of the home is reassessed at full current market value. Even if the outcome of transferring real estate is a change in ownership, there are a number of exclusions from paying current tax rates – and so certain homes or other real estate will often not be be reappraised under these sorts of home transfers.

If a property owner files the proper claim, an exclusion from paying updated current property taxes will kick in as long the owner’s property, or portions of this property, are correctly excluded from reassessment.

The best way to cover changes in ownership that are excluded from automatic reassessment, or reassessment by claim; is to enlist the help of a tax attorney, a property tax consultant, or a trust lender who specializes in establishing a low property tax base for heirs upon inheriting a home from a parent.

Frequently, this will assist beneficiaries in buying out inherited property shares from co-beneficiaries through a loan to an irrevocable trust, which realtors and property tax specialists call a transfer of property between siblings or a sibling-to-sibling property transfer – working in conjunction with a California Proposition 19 parent to child property tax transfer on an inherited home – a parent-to-child exclusion (from property tax reassessment at full, current market rates), to establish a low property tax base.

Naturally, this line of property tax relief, based on a parent’s property also includes the ability to transfer property taxes when inheriting property taxes from a parent. Under these tax breaks, a property tax transfer like this can help heirs keep parents’ property taxes basically forever, based on a parent-child transfer; or a parent to child exclusion from reassessment – to legally avoid property tax reassessment.

You can always consult your Tax Assessor, however it is generally in the Tax Assessor’s best interest to charge you the maximum amount possible. A property tax consultant or trust lender, on the other hand, is motivated to save you money on taxes, not see you spend more.

Affect of Disaster Relief on CA Property Taxes

Posted on December 15, 2021 by trustandestate

Revenue and Taxation rules and regulations in the state of California now stipulates that homeowners and business property owners can claim a property tax exemption if property is destroyed or significantly damaged by a natural disaster such as a winter storm, drought, earthquake, windstorm, flooding or forest fire – verified by the CA Governor. You may be eligible if you’re the owner of property impacted by any of these natural disasters.

The CA County Assessors Office in your county will appraise your property to determine how severe the damage is if, when it’s re-built in a similar fashion, the affected property has kept its’ previous value in terms of property assessment. As of 2021, under Proposition 19, every county in California has an ordinance for disaster relief, making a property tax exemption possible. As we all know, it used to be only a few counties that allowed this type of exemption or exclusion.

Revised property tax relief is now accessible to owners of real estate, farms, business equipment and fixtures, orchards and farms or other agricultural entities, as well as aircraft, boat, and certain manufactured home owners. Tax relief is not available to property owners of state licensed manufactured homes, or household furnishings.

The CA State Board of Equalization now tells us, “To qualify for property tax relief, you must file a claim with the county assessor within the time specified in your county ordinance, or 12 months from the date of damage or destruction, whichever is later. The loss estimate must be at least $10,000 of current market value to qualify the property for this relief. The property will be reassessed according to its damaged state and property taxes will be adjusted accordingly.”

After an application is processed by the county assessor’s office, a “Notice of Proposed New Assessment” will be sent to your address. A supplemental refund will be made based on the amount of reduction. The refund will be prorated from the month in which the disaster occurred to the end of the fiscal year or completion of new construction, whichever is first. You do not have to file a separate claim for a refund, but you do have to pay your standard tax bill.

The form and its title differ from county to county; therefore, you must contact your county assessor for an application for reassessment for property damaged or destroyed by a specific disaster. Some forms can be downloaded off the county’s website.

You can locate find your County Tax Assessor’s contact info through this list of County Assessors: https://www.boe.ca.gov/proptaxes/countycontacts.htm

What Exactly is the Parent-Child Exclusion?

Posted on December 15, 2021 by trustandestate

The Parent-to-Child Exclusion (from paying current property tax rates) applies to any real estate purchases or transfers between parents and children, which occurred on or after November 6, 1986…

CA Parent-to-Child Exclusion Benefits

This exclusion prevents an increase in property taxes when real property is transferred between parents and their children in California. Formerly a crucial component of the wildly popular Proposition 58 parent to child property tax transfer, or parent-to-child exclusion, is still a key tax break in the tax relief bundle under California Proposition 19, as of Feb, 2021.

As we all know, this tax relief bundle works with property tax break components such as Proposition 13 transfer of property, the parent to child property tax transfer on an inherited home, or a fast 5, 6 day loan to an irrevocable trust under-pinning a transfer of property between siblings when buying out inherited property shares from co-beneficiaries.

These tax benefits mainly revolve around property tax transfer – namely the inheritance based ability for heirs to transfer parents property taxes, to keep parents property taxes long-term after inheriting property taxes as long as it’s California real estate… Making good use of the Prop 19 parent-child transfer working in conjunction with Proposition 19 parent-to-child exclusion benefits and related tax breaks.

What is the definition of a “child” for the purpose of this CA exclusion?
Natural children, children adopted before the age of 18, step-children (as long as the parents are still married), foster children, and sons- and daughters-in-law are considered children under this exclusion program.

Avoiding Property Tax Reassessment in California

In other words, property that will avoid a tax hike would be the transfer of property value from a “principal residence” to another primary residence – plus any other property valued up to $1,000,000 going to children. Properties will not be reappraised if the Claim for Exclusion from Reappraisal form is filled out properly, filed and approved by the Tax Assessor’s Office.

Grandparent-Grandchild Exclusion

Real estate can be excluded from excluded from reappraisal when transferred between grandparent and grandchild, as long as a Claim for Exclusion from Reappraisal form is filed and approved by the Tax Assessor’s Office. And only if both parents of the grandchildren are deceased prior to property transfer to grandchildren.

Proper Claim Filing

Residences do not receive this type of property tax exclusion automatically. A completed “Claim for Exclusion from Reappraisal” is required. This form has to be finalized and filed with the Tax Assessor’s Office for approval.

Conversely, if you don’t file this claim the outcome is likely to be reassessment of your property taxes at fair market (i.e., current) rates. To avoid a supplemental tax bill, this claim has to be filed within 3-years of property transfer or the date the decedent passed away, prior to sale or transfer to a third party. A claim can be filed within 6-months after the mailing date of the supplemental notice or “escape assessment”.

If this claim is filed late, the exclusion can still be granted but no refunds will be received for prior years. It will be granted for the year the claim is filed as long as the property has not been sold to a third party.

Filing a Claim if Property Inherited From Parents is Sold

Reappraisal will occur for the period between the date of the death and the sale to the third party. A supplemental bill will be issued unless the heirs or beneficiaries apply and qualify for this exclusion.

Filing a Parent-to-Child Exclusion & Reappraisal for Seniors

Reappraisal Exclusion for Seniors is a one-time only tax exemption for residents age 55 and older to sell their primary residence and transfer its’ low property tax base to a replacement home. Since the sold property has to be reassessed or reappraised, heirs would not get a tax break from the Prop 19 parent-child transfer benefit.

Postponing Property Taxes in California

Posted on December 3, 2021 by trustandestate

We have discussed this issue previously in this blog… however, it does bear further introspection. Property taxes that have been deferred for a few months can hardly be called property tax relief! Regardless how many people in state leaders hip positions call it “property tax relief”, it simply is not. It’s merely tax deferment. A parent-child exclusion avoiding property reassessment is a genuine property tax relief benefit. The press should not conflate the two in headlines as if they were the same. They’re not.

Genuine Property Tax Relief VS Postponed Property Taxes

The State Controller’s property tax postponement program permits senior property owners and homeowners with a severe disability to defer property taxes on a primary residence – if they are in compliance with the new Prop 19 requirements plus have 40% or more equity in their house; with a household income of $45,810 or less per year. With a lien against the house, until taxes are paid off.

You get to delay paying the tax man for ninety days. So Californians need to determine what this actually accomplishes. Does this help homeowners financially? Now, deferring taxes for five-years might be helpful to some property owners. But a few months is simply not going to move the needle into the “help” column.

Other than being a rather weak gesture, this is a dismal effort to help residents in California get through an unprecedented, tough time. If the folks running the state wanted to really help Californians, they might want to consider simply deleting property taxes this year, and see how the virus crisis is next year.

Not only would this be a great political move – it would actually help homeowners in a big way. It would be a genuine property tax relief initiative. Postponing property tax payments is merely deferring taxes that have to be repaid anyway, therefore there is no authentic relief of taxation involved here, merely a delay.

Property Tax Exemptions for Disabled Veterans

If a military veteran is 100% disabled as a result of a combat wound or whatever, that veteran can get approved for a full property tax exemption. Other homestead exemptions exist for veterans over the age of 65, along with surviving spouses.

Eligibility

To be eligible, a homeowner has to apply and subsequently meet all of the criteria below for every year in which a postponement of property taxes is being requested:

• Residents must be age 62 or older; or severely disabled (including blindness);
• Residents must own and reside in a primary home (exception being house-boats);
• Residents must verify a household income of $45,810 or under;
• Residents must own 40% or more of the property;
• There can be no reverse mortgage on the property in question.

Property Taxes that are in Default, or are Unmanageable

CA state law does not allow the SCO (State Controller’s Office) to pay for delinquent or defaulted property taxes that are owed on a home, for example, that is under consideration for postponement of property taxation. Late These taxes simply have to be paid, by California law. Regardless of a Pandemic, or whatever.

However, you can qualify for postponement of current taxes. The amount of defaulted property taxes will be added to the amounts owed against the property to determine equity. Therefore “delinquent” or “defaulted” property tax payments do not qualify for tax deferment. Another reason this mild gesture does not contain any of the earmarks of genuine tax relief…. such as those provided for by tax breaks like a parent-child exclusion avoiding property reassessment.

Interest Rates on Deferred CA Property Tax Payments Owed

The interest rate imposed on “postponed” taxes under this PTP (Property Tax Postponement) program is 5% yearly. Interest on postponed property taxes is computed monthly on a simple interest basis. Interest on the postponement account continues to accrue until all postponed property taxes plus interest are repaid to the state. So $1,000 in deferred taxes would be $50 yearly – $4.17 monthly.

Property tax relief? It looks more like loan sharking than it does tax relief.

A Lien or Security Agreement for Postponed Property Taxes

To secure repayment of deferred property taxes, the State Controller’s Office (SCO) imposes a lien against property with the county or a security agreement with the Department of Housing and Community Development. The lien or security agreement remains in effect until the account is paid off. A one-time fee is added to release a lien once the account has been completely paid off.

Property Taxes Paid By California Lenders

The State Controller’s Office (SCO) is not responsible for contacting your lender if your property taxes are currently paid through an impound, escrow, or other type of account. If you’re approved for Property Tax Postponement (PTP), the SCO will typically agree to make a payment on your behalf directly to the County Tax Collector. PTP does not reduce your monthly mortgage payment. A business property owner or homeowner must contact their lender directly to pay off monies due.

Refund of Paid Property Taxes

Once an application is approved and property taxes have been paid for a current-year, or if the property taxes are paid by a lender, a property owner receives a refund from their county tax collector.
All full or partial payments are applied to accumulated interest and to the balance owed. Checks or money orders are payable to the “California State Controller’s Office” and mailed to:

California State Controller’s Office
Departmental Accounting Office – PTP
P.O. Box 942850
Sacramento, CA 94250-0001

Collection and repayment process

Homeowners can pay all or a portion of the balance to the State Controller’s Office at any time. However, postponed property taxes and interest are due right away or payable when a homeowner:

a) Moves away from a property;
b) Sells or conveys title to the property;
c) Is deceased but does not have a spouse, registered domestic partner, or other qualified individual who continues to reside in the property;
d) Is delinquent on future property taxes or has other senior liens;
e) Refinances or gets a reverse mortgage on the property in question.

Authentic Property Tax Relief

As you may or may not know – genuine property tax relief does exist in California, in terms of establishing a low property tax base when inheriting a home; through a process discussed in this blog several times, combining a parent-to-child exclusion avoiding property reassessment protected by Proposition 19 in concert with a 5 or 6 figure loan to an irrevocable trust from a trust lender.

The process of buying out siblings’ shares of inherited property through an irrevocable trust loan – the transfer of property between siblings or “sibling to sibling property transfer” – equalizes payment among beneficiaries selling their inherited property shares, and furnishes them with far more cash than a conventional outside buyer would.

Likewise, genuine property tax relief such as keeping a low property tax base when inheriting a home; or property tax transfers in California for those inheriting real estate from parents… giving homeowners the ability to transfer parents property taxes under Proposition 19 in tandem with a locked-in parent-child transfer or a parent-to-child exclusion avoiding property reassessment at high current tax rates when inheriting property taxes, and transferring property taxes in California.

Although, manufactured home owners with delinquent and/or defaulted property taxes do not qualify for property tax postponement. However, as we have already indicated, it’s high time to cease discussions altogether about property tax postponement – and start pivoting rapidly towards property tax cancellation, while the pandemic continues to cause shutdowns and job losses and economic hardships for middle class homeowners.

Understanding New Property Tax Relief Law in California

Posted on December 3, 2021 by trustandestate

California Property Tax Transfer Law

Using Reassessment to Your Advantage

Have you considered that property reassessment can sometimes work in your favor? For example, if property values drop. While we would prefer to see the value of our house increase, at least in a down market as our property value goes down – and so do property taxes.

We’ll always take the point of view that property taxes should be lower. So if our property value drops, future increases would not be limited to Proposition 13’s popular 2% maximum increase every year. Yet if we transfer the property to someone else and regrettably trigger property reassessment, we can reset the property tax basis and future increases to the lower value.

If we find ourselves in that position with a taxable estate, we can think about transferring our property out of the estate. This will reset the property tax basis to a lower value – potentially reducing estate taxes. It’s certainly worth thinking about. Owning our own home is the classic California dream… The classic American dream. So being able to pass along that investment usually makes a great deal of sense to most of us.

Proposition 19 Replacing Previous Property Tax Benefits

As most Californians know by now, on Nov 3, 2020, CA voters approved Proposition 19 – a constitutional amendment verbosely titled the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act.”

The benefits are relatively simple and straight forward… With Prop 19 more or less replacing and continuing the Proposition 58 parent-to-child exclusion from paying current property tax rates; voted into law in 1986. With the right to keep parents property taxes on a property tax transfer, when inheriting property taxes… taking advantage of an inexpensive property tax transfer, in other words a parent-to-child property tax transfer measure called a parent-child exclusion. Along with Proposition 193, an amendment passed by voters in 1996, allowing grandparent-to-grandchild transfer exclusions from current property tax reassessment.

Proposition 19 also replaced and continues tax breaks from Proposition 60 (passed in 1986) and Proposition 90 (voted into law in 1988) – both property tax measures enabling home transfers by seniors over age 55 – as well as replacing and continuing Proposition 110 (voted into law in 1990), as a tax measure enabling an exclusion from property reassessment for severely disabled residents.

To be clear, Proposition 19 enables residents to an inexpensive property tax transfer – to inherit family properties and keep a low property tax base on their parent’s home that they are able to move into as their primary residence. This new property tax relief also lets homeowners who are over age 55, extremely disabled, or victims of a wildfire or governor confirmed natural disaster to transfer the assessed value of their primary home to a newly purchased or newly constructed replacement primary residence up to three times in a lifetime.

With Proposition 19 taking over property tax breaks from the wildly popular CA Proposition 58, it bears repeating that the parent-child exclusion and inexpensive property tax transfer can be taken advantage of only when an heir inherits a home from a parent that was using that same property as a primary residence, not a vacation home – with an entire year to comfortably move into that parental home, as a primary residence.

New Property Tax Relief Benefits for Californians

However, homeowners also have the ability to file for a “homeowner’s exemption” as long as the home in question has been the principal residence of the owner as of Jan 1 of that tax year. A new owner will automatically receive an exemption claim form in the mail and there is no cost to file. To receive 100% of this $7,000 exemption a new property owner has to file with the local County Tax Assessor by Feb 15 of that year.

As most Californians know by now, we can’t take advantage of the parent-to-child exclusion if our inherited house is going to be used as a vacation home, rented out to tourists, rather than a primary residence. Fortunately, if the home is inherited by numerous children of a parent, only one heir needs to reside there to take advantage of an – the exclusion.

Moreover, a parent can shelter $1,000,000 of increased value from reassessment. Any appreciation above that will be added to the property tax assessed. In other words, if a primary residence is assessed today at $500,000 however is valued at $1,500,000, an heir inheriting the residence as a primary residence will keep the same property tax assessed value of $500,000. Fortunately for families in the agriculture business, this new limitation also impacts family farms.

These new property tax breaks applied to any transfer of California real estate after Feb 15, 2021, as a gift or an inheritance at death. They also apply to an irrevocable trust (such as a Qualified Personal Residence Trust or a trust created for your benefit by a predeceased spouse) that owns California real property and that will pass to children in the future.

Moreover, it’s fortunate mainly for middle class, upper middle class, and working families that a large loan to an irrevocable trust can still also be used by beneficiaries who wish to keep a parental home they’re inheriting at their parents’ low property tax base, when taking advantage of Proposition 19 (formerly the popular Proposition 58 tax break) to buyout co-beneficiaries, also referred to as buying out sibling property shares – looking to sell their inherited share of the same property, a – typically at a much higher sale price than an outside buyer would offer. The 6% realtor commission, attorney fees, closing costs, cosmetic improvements to please buyers, and other ancillary charges – all disappear when a trust loan from a trust lender furnishes the funding for a sibling buyout.

When you have a reliable trust lender at your side to make buying out sibling co-beneficiaries possible – it pays to keep it in the family.

PART TWO: The History of Property Taxes in California

Posted on December 1, 2021 by trustandestate

The History of Property Taxes in California

Socio-Economic Developments Leading Up to Proposition 13

California residents voted Proposition 13 into law (otherwise named “The People’s Initiative to Limit Property Taxation”) as a property tax limitation measure, after years of arbitrary tax hikes, which were viewed by state economists as an unprecedented statewide mass response to limit property taxes that had expanded to degrees that were seen by the citizens of California as unreasonable and spiraling upwards out of control since the 1960s – which was reportedly creating a statewide revenue surplus of five billion dollars.

Many elements brought about Proposition 13. Aging and elderly Californians living on a modest fixed income were experiencing compounding difficulties paying their property taxes… and frequently older homeowners, veterans, retirees and other aging middle class and even upper middle class Californians living on a fixed income were being displaced by foreclosure and sudden eviction, literally with their belongings and furniture on the street! This certainly brought about greater public interest in property tax relief for homeowners over 55. There were also issues arising from population growth in California, and severe inflation during the 1970s, which created a growing demand for homes suitable for starting a family.

Residential properties were reassessed at such high rates that property taxes escalated to such a degree that many retirees could no longer sustain these inflated rates and hold onto the homes they had bought decades before. Naturally, Proposition 13 attracted their votes and protecting older homeowners from property tax hikes, so older Californians would no longer be priced out of their home from egregiously high property taxes, was the image that framed the branding for Proposition 13 in the run up to the Nov 1978 ballot when voters actually had the opportunity to vote property tax relief from Prop 13 into law as an Amendment to the CA Constitution.

Proposition 13: Property Tax Relief Replaces Arbitrary Tax Hikes

Proposition 13 was listed on the ballot through the California ballot initiative process. The Proposition 13 amendment to the CA Constitution, impacting all 58 counties, formally passed on June 6, 1978, with 2/3 of the vote in favor and with the participation of around 2/3 of all registered voters in the state – becoming Article 13-A of the California Constitution.

As Proposition 13 took affect in 1978—1979, California properties were reassessed at current or “fair market” value only when there was a change in ownership or there was completion of brand new construction, referred to as “base year value”.

In addition, Proposition 13 limited annual increases in the base year value of real property to no more than 2% except when property changes ownership or is under construction. Proposition 13 successfully changed a market value-based property tax system to an acquisition value-based system.

Feb 2021: Proposition 13 Morphs into Proposition 19

As the history of present day property tax relief further unfolds, new tax assessment exclusions for inherited property could, in some cases, have a less than positive affect on wealthy homeowners and beneficiaries.

Paul DeLauro, property tax relief specialist and manager of wealth planning at City National Bank, informs us, “Proposition 19 changes several tax rules, but the biggest impact will be on high-net-worth families [impacting heirs inheriting family owned high-end real estate]. Proposition 60, which passed in 1986, allowing property tax relief for homeowners over 55 who wanted to sell their home and move to another house of equal or lesser value in the same county to take their tax assessment with them. The idea was to make it easier for seniors to move without worrying about a huge jump in their property tax bill that might be difficult for them to pay.”

The 1986 Proposition 58 parent to child property tax transfer on an inherited home morphed into Proposition 19, which was, as you probably know, voted into law in Nov of 2020 and adopted other property tax relief benefits such as property tax relief for homeowners over 55, for residents with severe disabilities, and who are victims of natural disasters such as forest fires, floods or earthquakes.

Another property tax relief expert, attorney Bruce M. Macdonald with law firm Carico Macdonald Kil & Benz LLP in El Segundo CA tells us, “If someone over 55 sold a house for $5 million, but they were paying taxes on a lower assessed value based on their original purchase price, they could buy a new house for $2 million and still pay taxes at their original, lower tax assessment”.

Prop 19 Enhanced Certain Benefits While Limiting Others

So while Proposition 19 admittedly limited certain benefits for Californians with respect to avoiding property tax reassessment, especially beneficiaries inheriting a home from a parent, such as property tax transfer, the right to transfer parents property taxes, and the ability to keep parents property taxes after inheriting property taxes from parents with a parent to child property tax transfer; as well as the important and highly popular parent-child exclusion from paying fair market (i.e., current) property tax rates.

However, on the other hand, Prop 19 allowed transfer of property between siblings through a loan to an irrevocable trust, without limitations; and actually expanded property tax relief for homeowners over 55, for residents with severe disabilities, and for victims of natural disasters, as we mentioned a moment ago.

Mr. DeLauro went on to add, “Prop. 19 is highly attractive for eligible homeowners who want to sell their existing primary residence and move to another residence in the state without incurring a higher property tax bill“.

Mr. Macdonald also added, “These new rules allow people to move to any county in the state and not just within their own county. The new house can even be more expensive than the one they sell, and homeowners over 55 can transfer their tax assessments three times in a lifetime.”

Legal Challenges to Proposition 13

After Proposition 13 passed, its constitutionality was challenged. The California Supreme Court upheld the constitutionality of Proposition 13 in Amador Valley Joint Union High School District v. State Board of Equalization on September 22, 1978. Moreover, in 1992 the United States Supreme Court ruled, in Nordlinger v. Hahn, that Proposition 13 did not violate the equal protection clause of the United States Constitution. This ruling more or less effectively ended speculation about whether the judicial system could overturn or revise Proposition 13.

State Board of Equalization and the Taxpayers’ Rights Advocate

The Taxpayers’ Rights Advocate, appointed by the BOE (State Board of Equalization) is responsible for identifying areas of recurring conflict between taxpayers and property tax assessment officials; as well as determining how effective the BOE’s County Tax Assessors are providing materials to property taxpayers as well as dealing with inquiries, complaints, and challenging issues requiring fast resolution.

Lisa Thompson is currently the Taxpayers’ Rights Advocate. Lisa and the Taxpayers’ Rights Advocate Office staff are independent of the agency’s program staff. The Taxpayers’ Rights Advocate Office helps taxpayers who are unable to resolve a problem through normal channels. 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.”

The BOE holds public hearings to address the report and related property tax issues. In addition, the Property Taxpayers’ Bill of Rights provides measures designed to promote the fair administration of the property tax.

PART ONE: The History of Property Taxes in California

Posted on December 1, 2021 by trustandestate

The History of Property Taxes in California

Property Taxes Before and After World War Two

California no longer depended on property taxes as its’ principal funding source after 1912. And after 1929, during the depression years, there were massive amounts of unpaid property taxes. In fact, some states excluded certain owner-occupied homes from property taxes altogether. Many taxpayers avoided purchasing tax delinquent homes and properties, and governments in some states enforced limits on property tax rates.

These so-called “homestead exemptions” became rather unpopular with the public at large as they tended to be wealthy homeowners, with what was perceived as unfair property tax relief, and apparently reduced revenue to local governments that depended largely on property taxes from homes rather than other forms of real property.

During World War Two, state and local taxes were stabilized, or decreased, as spending programs were cut back due to decreased needs, or unavailability of building materials and other resources. This was reversed in the post-war years, after 1945, as governments expanded social programs and took advantage of rising property value to increase tax collections. Assessment rose, tax rates rose, and the newspapers ran stories of homeowners forced to sell their house mainly because of rising taxes. No one was keeping a low property tax base from parents when inheriting a home.

Once Germany and Japan surrendered to the Allies in 1945, and World War Two ended… most states replaced the “homestead exemption” with so-called “circuit breakers” which were state financed and clearly benefited blue-collar and middle class homeowners, senior and elderly homeowners, and disabled persons. In many states renters were included by tax measures that actually viewed certain rental payments as property taxes. (By 1991 there were 35 states with some sort of “circuit breaker” exemption in place).

California Tax Revenue

Property taxes have now created a revenue stream for the state of California that funds changing needs of cities and counties, school systems, and what is referred to as “special districts”.

California’s primary source of state funding is now a combination of sales tax, income tax, excise tax, as well as banking and corporate taxes, and “use tax”, which is a sales tax on purchases made outside one’s state of residence for taxable items that will be used, stored or consumed in one’s state of residence and on which no tax was collected in the state of purchase.

California Property Taxes in the 1960s

During the early 1960s in California there were various scandals involving County Tax Assessors. These particular Property Tax Assessors were caught gifting personal friends and political associates with abnormally low property tax assessments, and unnaturally low tax bills. Not at all like keeping a low property tax base upon inheriting property from mom or dad in 2021!

The Tax Assessor scandals brought about Assembly Bill 80 in 1966, which imposed standards to hold assessments to market value. The return to market value in the wake of AB 80 could easily represent a mid-double-digit percentage increase in assessment for many homeowners.

A huge number of homeowners in California were impacted with a significant increase in property valuation and tax rates, only to discover that this tax revenue was to be distributed to communities far away from where they resided.

California Property Taxes in the 1970s

This type of activity, distributing tax revenue to distant communities created a widespread pessimistic attitude among middle class and blue collar homeowners towards the tax system in general, and it’s reportedly biased view towards wealthy, well-connected families.

This viewpoint grew throughout the state until the 1970s, when it morphed into a tidal wave backlash of anger against the existing property tax system. This gave apt. building magnate Howard Jarvis and his Taxpayer’s Association great momentum towards expanding and popularizing property tax relief in all 58 counties in the great state of California.

California’s Famous Tax Revolt That Led to Proposition 13

Within a few years the country was awash with truly emotionalized tax protests, often referred to as “The California Tax Revolt”. Almost every state imposed some sort of limitation on 111 property taxes, coming to a head with the widely promoted Proposition 13 – an amendment to the California constitution, passed by popular vote in California on June 6th, 1978, with nearly 2/3 of Californians voting for Proposition 13, reducing property taxes by 57% – establishing this to be the most effective assault on property taxes in American history.

The Proposition 13 amendment limited property taxes to 1% of full cash value; requiring real property to be valued at its March 1, 1975 value – or on the date it changes hands or is constructed after that date; limiting subsequent value adjustment to 2 % per year or the rate of inflation, whichever is lower. This prohibited the sales impact or “transaction taxes” on the sale of real estate; and required a 2/3 majority vote in each house of the legislature to increase state taxes; plus a 2/3 electorate vote to increase or add new local taxes.

Although Proposition 13 was the most well known initiative to limit property taxes, along with transferring property taxes from parent to child on a property tax transfer from a parent. Inheriting property taxes can offer a great upside, when an heir is able to keep parents property taxes. And of course have the ability to work with a trust lender when taking advantage of property tax relief from Proposition 13 and Proposition 19 (formerly Prop 58) and it’s flagship tax break, the parent-to-child exclusion, to avoid property tax reassessment and keeping a low property tax base when inheriting a home, as well as being able to buyout property shares from co-beneficiaries, typically siblings, with a loan to an irrevocable trust.

Proposition 13 and Proposition 19 make it possible to continue keeping a low property tax base when inheriting a home, however they are not the only property tax measures to limit and control property taxes. Some limit tax rates, or property tax maximums. Other tax measures provide specific groups with limited but significant tax breaks; with some property taxes designed to promote various forms of economic development in various urban or rural areas. Interestingly enough, these tax measures included provisions favoring agricultural land, reduced taxation of owner-occupied homes, exemptions that benefit seniors, or veterans, or the disabled, the elderly, or the poor.

Economic incentives built into some of these property tax laws included lower rates on particular businesses, exemptions covering people of a certain age, tax breaks in developmental areas, and more….

>> Click Here for Part Two…

California Property Tax News

Property Taxes and Transferring Property Taxes in California

Monthly Archives: December 2021