Category Archives: Ongoing Tax Relief From Proposition 13

How Has California Proposition 13 Evolved Over the Years?

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Before 1978, rising California property taxes were escalating out of control. Since 1978, Proposition 13 dramatically lessened the accelerating anxiety that was negatively affecting middle class California home owners, who were, at that time, constantly worrying that their property taxes were going to continue going up.  Now, children keep parents property taxes in CA… and anxiety over property taxes has abated considerably. Prop 13 has evolved over the years, and has continued to provide positive tax relief for California home owners; industrial properties, and companies…

Click Here: to see how this is reflected in a recent PPIC.org survey (co-managed by Associate Survey Director) mirroring likely voters and/or real property owners in California.

To everyone’s relief, things changed when California Proposition 13 began protecting property owners and city or town local governments right away from financial insecurity largely caused by unpredictable property tax increases; as well as unexpected economic boom-bubbles and bursting bubbles within the real estate market.

That type of unpredictable financial stress hurt a lot of people in California; and often forced families to leave the beloved home they had grown up in… Unpredictable, rising property taxes caused a great deal of growing anxiety and fear among many middle class home owners, both young and old – often causing parents and grown children to reside far apart, against their wishes; frequently forcing families to downsize, or move to less desirable area; often doubling or even tripling the commute time to work. These issues do add up, and frequently affect quality of life.

From 1978 forward… as Proposition 13 took hold, this fear and disruption abated and decreased to a large degree… and California became a much happier, more secure state for home owners to live and raise families in.

Proposition 13 also put in place a much more reliable property tax revenue system that has grown roughly 7% per year since Proposition 13 has been in effect, and economists estimate revenue from property taxes will soon grow to a record high $74 billion.

All in all, Proposition 13 began and has remained a win-win proposition for Californians, along with Proposition 58 in 1986… strengthening family bonding and overall net worth, and providing an enormous blanket of peace of mind for home owners of all stripes, cultures, ages and incomes…. as well as those looking to become happy home owners.  Click here for more discussion on these positive affects, from both Proposition 58 and Prop 13.

Moreover, the ability to avoid property tax reassessment also works in concert with the need many home owners have for immediate funds from a trust loan, bearing in mind the ability for trust lenders to extend loans to irrevocable trusts, regardless of beneficiaries’ income status,  credit score or income.  Especially for new home owners, it’s critical to be able to keep parents’ property taxes, when inheriting property taxes that might otherwise be unmanageable.

Avoiding property tax reassessment is invaluable within the unique process of keeping real property “in the family”, by enabling real estate, home & land transfers, from parent to child  or child to parent – without present day tax value reassessment.

And now, although children keep parents property taxes in CA. and this tax relief goes unquestioned by home owners, California Proposition 193 has expanded this tax relief even further, allowing grandchildren to be excluded from reassessment when real property is transferred from grandparents to grandchildren. This shores up the close-family circle nicely.

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

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

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

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

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

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

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

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

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

GS/01/06/20

California Proposition 13

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California Proposition 13

California Proposition 13 is also known as “The People’s Initiative to Limit Property Taxation”.  Prop 13 is an amendment to the Constitution of California that became law in 1978. When voters in California passed Proposition 13, the maximum amount of tax on real estate no longer could exceed 1% of the total cash value of your home, or additional real property you owned.  Moreover, Prop 13 limited yearly increases of assessed value of real estate to an inflation factor not to exceed 2% per year.

Another component of Proposition 13 transfer of property is that it prohibits reassessment of new base year value, except when there is a change in ownership of real property, or new construction. This permits homeowners in California to refinance a mortgage without being concerned that their home, or real  property, will be reassessed for market value. This is often of particular concern to elderly homeowners, who frequently reside in the same home for decades; and therefore have many opportunities to re-mortgage, with a long-term payment schedule in place.

In 1986 California voters passed Proposition 58, which, in a sense, works in concert with the limits that Proposition 13 places on your home’s tax base.  In other words, Proposition 58 excludes transfers of real property, between parents and children, from current market value tax reassessment. Prop 58 allows property to be transferred from parent to child, or vice versa, with the use of a Trust.  For example, this enables an adult child to inherit a home from a parent, and keep the parents’ low Proposition 13 tax base. The ability to do this  frequently saves beneficiaries receiving property from parents literally thousands of dollars per year, and in many cases tens of thousands of dollars, in property taxes.

There are some restrictions when it comes to proposition 58.  Properties held in a Trust must meet certain requirements in order to qualify.  For instance, one  requirement states that no funds from an acquiring beneficiary can be placed in the Trust.  In that particular circumstance, a loan is often received from a third party, and placed in the Trust. You can learn more about third party loans for California Proposition 58 qualification here.

There have been some discussions in the media, and among the political class, in California, about repealing both Proposition 13 and Proposition 58.  However, as you can imagine, both Propositions have a great deal of support among California homeowners.

In fact, 42 years after California Proposition 13 went into law, it still enjoys popular support among most California homeowners.  It’s interesting to note that a survey by the Public Policy Institute of California revealed that 57% of  adults polled support the measure.  However,  58% would prefer to allow  homeowners keep Prop. 13’s tax relief and property protections (particularly for seniors) while imposing higher property taxes on business owners.  33% of those polled oppose that sort of taxation on business owners in California.

What do you think? Let us know… We’ll be publishing the results of this survey, so your participation is valuable, and greatly appreciated!  (Your name and contact info will of course remain confidential and private, and will never be shared with any third party entities)…