Part Five: California Proposition 58, How to avoid property tax reassessment on an inherited home.

Bringing us up into the present, critics such as Assemblyman  David Chiu, of the San Francisco Assembly’s housing committee, continue to ignore how wildly popular avoiding property tax reassessment is in California… and  they are still repeating the same litany that is echoed by a thin minority throughout the state, insisting that, “The inheritance tax break has exacerbated [wealth] inequality and is symbolic of that inequality. The idea of the American Dream of everyday people being able to make it is completely impacted when the haves get more, and the have-nots have no chance of benefiting from property investment windfalls.”

We hear this litany all the time… indicating that wealthy Californians are the only people in the state that benefit from the Prop 13 tax break, avoiding property tax reassessment.

This misinformation is, of course, nonsense…. twisting the truth to fit a certain point of view; which in itself is, essentially, untrue on the face of it. All those people Mr. Chiu is actually referring to are renters not owners… and yet – without knowing it he is actually making the point that needs to be made – that, bottom line, most landlords are able to save on property taxes, thanks to Prop 13, and in turn this allows them to keep rents low for renters. However, that’s the part of the equation that folks like Mr. Chiu forget!

And if indeed property owners, i.e., landlords, throughout California, did not have the Proposition 13 tax break, obviously they would be motivated to raise their rents. So, in fact, without knowing it, Mr. Chiu and others voicing the same opinions are surfacing the critical point that proponents of these tax shelters have been trying to make – since you could avoid property tax reassessment with Proposition 13, after it was passed overwhelmingly by nearly 66% by voters in 1978, and subsequently, in 1986, when the popular Proposition 58 parent to child transfer of property taxes passed, providing parent to child exclusion from property tax reassessment; plus Proposition 193, a constitutional amendment approved by voters on March 27, 1996, which allows grandparents to transfer property to grandchildren – with the ability to avoid property tax reassessment all on their own as grandparents and grandchildren.

The main point being, it’s not only property owners that are benefiting financially from Proposition 13 tax relief – we have also found Prop 13 and Proposition 58 benefits strengthening family bonding and overall net worth, providing an enormous blanket of peace of mind for home owners of all stripes, cultures, ages and incomes…. as well as those expecting to inherit CA property, or looking to become happy home owners. Moreover, renters are paying far less in rent, thanks to the property owners they pay rent to being able to continue avoiding property tax reassessment, and therefore spending less every year on property taxes that they would otherwise be passing on to their renters. Clearly, this savings trickles down from owner to renter for thousands of renters in California. Whether the David Chiu’s of this world care to admit it, or not.

Part Two: Why are Proposition 13 & Prop 58 Critical to Californians?

Before Proposition 13 was passed by voters on June 6, 1978, average tax rates in California were close to 3% of market value, without any guardrails as far as property tax or property value assessments were concerned.  This is why Prop 13 & Prop 58 are critical to Californians.

In fact, right before Proposition 13 was passed, things has gotten so bad that there were homes being reassessed by fifty percent… to a hundred percent from one year to the next, literally within a 12-month time-frame. Home owners’ tax liabilities were going through the roof! So much so, that many middle and even upper middle class property owners were actually unable to pay the tax hit on their home consistently every year.

Folks who resided in California at that time, and still live in California to this day, tell us that you could see the anxiety and fear etched into the faces of property owners all across the state. There was no predictability, regarding property taxes, from year to year. People never knew what increases would be eating into them from year to year.

There was a point, before 1978, when these tax-increase issues were so severe and problematic, that over 400,000 home owners in LA County were actually not able to pay their property taxes due to particularly egregious tax increases. With many people coming very close to losing their homes, and some literally losing their primary residence where they have lived for years; many for decades, such as elderly Californians, who were particularly badly affected.

Many seniors were free of mortgage debt, and yet were forced out of their home because they couldn’t afford to pay their property tax… and many became literally sick with anxiety and worry over the fear of losing their home.

Millions of Californians were on the edge of that cliff, facing the catastrophic loss of their home to the taxman. It was around that time, in the late 1970s, when things had gotten so bad that home owners were urgently looking around for some sort of solution to all this instability and fear that was basically ruining their lives… when a knight in shining armor appeared… and all he needed to fit the mold of hero was the white horse. This man breezed past the taxman, refusing to be intimidated, as he gathered support for a solution to this disastrous situation – and assembled over one and a half million signatures on a petition.

That knight in shining armor was Howard Jarvis who, with his Taxpayer’s Association, helped generate literally hundreds of thousands of signatures, and qualified for a statewide initiative that would finally end “excessive taxation” and would finally provide an initiative to create security and predictability for California home owners. And that initiative was called California Proposition 13, which remains vastly popular across the state, to this day.

Interestingly enough, Prop 13 has also spawned the wildly popular home & land transfer initiative Proposition 58, making parent to child transfer of property more affordable by avoiding  property tax reassessment; i.e., parent to child exclusion; with respect to  property tax transfer – allowing adult children/beneficiaries to transfer parents property taxes.  In other words, to keep parents property taxes when inheriting property taxes associated with home or land transfer, often as an inheritance.

All which has, in turn, spawned an extremely successful yet small niche trust loan services industry in California, furnishing loans to trusts, specifically loans to irrevocable trusts… spearheaded by trust loan industry leader Commercial Loan Corporation, a trust lender of wide renowned in both southern and northern California. The point being, that the Proposition 59 & Prop 13 initiatives, as well as trust loan services, have all revolutionized residential and commercial real estate in California, and residents will fight hard to maintain that status quo. Because  Prop 13 & Prop 58 are critical to Californians.  Now that they have it, they won’t want to live without it.

It is just unfortunate that the rest of America can’t also enjoy the tax relief benefits stemming from these property tax initiatives  and, ultimately, from California Proposition 13 itself.