New Property Tax Relief Laws & Belief in the CA Legislature

Property Tax Transfers

Property Tax Transfers

Can California rely on Property Tax Exclusions from Prop 19?

Despite the growing waves of criticism and anxiety from residents in California, regarding Proposition 19, given all the cheer-leading from the California realtor community, more or less led by the CA Realtor’s Association – state sponsored public relations continues to convince us how fabulous Proposition 19 truly is.

We are constantly reminded that, despite certain obvious limitations affecting homeowners and beneficiaries inheriting property from their parents, we do have new property  tax exclusions from Prop 19.   Proposition 19 is providing us with tremendous property tax breaks which did not exist previously, with Proposition 58 tax relief.

Truth?  Publicity?  Or happy talk… 

Supposedly, despite new property tax exclusions from Prop 19,  the state will see an extra yearly revenue of a billion dollars plus, to help schools in towns and cities – although the California State Board of Equalization (BOE) is a little short on concrete specifics and details, in terms of how much revenue is actually expected to come in overall from these new property tax laws; and specifically how much money will go to fire departments, and how much will be allocated to help seniors and the elderly… and homeowners with serious infirmities. 

Moreover, Proposition 19 also seems to be rather fuzzy, with respect to anticipated property tax revenue that is supposedly going towards balancing budgets – possibly with provisions to step up the state’s recovery from Pandemic driven financial losses.

Additionally, beyond property tax exclusions from Prop 19 that we already know about, and hope will be consistent – extra tax revenue from Proposition 19 is supposedly expected to furnish all sorts of other “significant added protections” for CA residents – although proponents of Prop 19 as well as BOE are extremely vague, as far as articulating precisely what these “protections” might be every year.  Again – fact based info dissemination?  Or simply PR happy talk…

Prop19 revenue for city and county fire departments & schools

Proponents of Proposition 19 singled out supporters of Proposition 13 property tax relief as creators of “tax schemes” and “deceptive practices” – “costing local governments and schools up to $1.5 billion every year” – without describing exactly what those “tax schemes” and “deceptive practices” actually are… And what those numbers that  supposedly cost the school system a small fortune really look like – above and beyond vague projections designed to scare tax payers half to death.  

We also frequently hear about “unfair tax loopholes” used by supposed “East Coast investors” and “celebrities” or “wealthy non- California residents” as well as “trust fund heirs” – who are perpetually unnamed, wealthy property owners, who supposedly avoid paying “their fair share of property taxes on vacation homes, income properties, and beachfront rentals they own in California.”

An obvious reference to the Lloyd Bridges family, the only family in 40 years that has been named as property tax perpetrators of the above so-called violations, whose heirs happened to inherit a nice beach home, using Proposition 13 to cap property taxes at 2%… subsequently renting the home out at $16,000 per month to vacationers from out of state. (As opposed to residing in the property as a “primary residence”.)

No other family has ever been named and singled out as using Proposition 13 for such “nefarious purposes”.  It appears that the justification for Proposition 19 limitations were based on this one family… this one inheritance.

Maintaining the spirit of Proposition 13 and Prop 58

Proponents of Proposition 19 insist that their favorite tax measure will “continue to preserve the intent of Proposition 58 and Proposition 193” – keeping family homes affordable when parents and grandparents pass on their family home to children and grandchildren to use  as a  “primary residence”. 

As we all know, this is partly true, and where  limitations are concerned… partly not true. Fortunately, beneficiaries can still     use a parent-to-child exclusion in conjunction with Proposition 19.

When inheriting property while keeping a low property tax base,  smart beneficiaries are still able to buyout property tax shares from siblings, with advice from a Property Tax Consultant, and funding from a Trust Lender such as Commercial Loan Corp.

We continue to hear about the $1 billion per year in Prop 19 generated revenue that is going to fire departments and unions, school systems and local governments.  We also hear about that revenue somehow being used for emergency services, public hospitals, general healthcare, homeless folks, and housing projects. However… again, no specifics. Just general allusion to a lot of hopeful initiatives. 

At the same time Californians hope that they will be able keep parents property taxes, and take advantage of property tax transfers to retain a low property tax rate from this parent-to-child transfer upon inheriting property from parents, while inheriting property taxes… to avoid property tax reassessment – typically through a parent-child transfer.

Homeowners and beneficiaries are waiting to see what specific applications will be readily available to them:

• to limit property tax increases for victims of wildfires, replacing damaged or destroyed property; limiting damage from wildfires on homes through supposed funding for fire protection and emergency response.

• to cap property tax increases on family homes used as a primary residence by protecting the right of parents and grandparents to pass on their family home to children and grandchildren as a primary residence.

• to take advantage of supposedly “thousands of housing opportunities” by making homes available for first-time homeowners and families in all 58 counties across the state of California.

Ultimately, Californians are taking for granted that there is a cap on property tax increases for primary residences for homeowners over 55 years old, people with severe disabilities, and victims of natural disasters or wildfires by removing county restrictions – apparently allowing these residents to locate a home that “better fits their needs”.

State leadership may be asking residents to stretch their trust a long way; without any iron-clad guarantees. Just a long list of top-down assurances. And residents as well as estate attorneys and tax lawyers, as well as accountants, are wondering, going forward into a murky future, what they can question… and what they can really rely on.

How Secure is Property Tax Relief for Californians?

Property Taxes in California

Property Taxes in California

Despite Critics, CA Property Tax Relief Is As Popular As Ever  

What all homeowners, property owners and working families inheriting property in California want to know – is whether or not property tax breaks from Proposition 13 and Proposition 19 are guaranteed, during our lifetime, to all California homeowners and beneficiaries inheriting property.

Naturally, this encompasses the ability to transfer parents property taxes, with a protected property tax transfer; the right to keep parents property taxes when inheriting property  property taxes, most frequently through a parent-child transfer, otherwise known as a parent-to-child exclusion.  Always to avoid property tax reassessment, even when it involves a loan to an irrevocable trust, in conjunction with Prop 19 for the transfer of property between siblings, commonly called an “inherited property buyout”, which is often implemented in concert with the right to keep parents property taxes.

So after 44 years of capping property tax increases at 2%, Prop 13 continues to be wildly popular with Californians. And due to the fact that Proposition 13 is a CA Constitutional Amendment, it can only be revised by voter approval.

Howard Jarvis Taxpayers Assoc president Jon Coupal tell us:

Without the two-thirds vote requirement, one of these second-mortgage bonds can now be passed by people who won’t pay the tax and in fact are getting more from the government than they pay in taxes.

After Proposition 39 took away the two-thirds vote protection for these bonds, localities quickly passed almost $30 billion in such bonds — debt that homeowners will be burdened with long after they’ve paid off their homes.  Since then, the two-thirds vote has been repeatedly attacked by a pro-tax coalition that wants to eliminate this protection for more and more kinds of bonds and taxes.

Currently, several proposals are active in the State Legislature to change the state constitution to eliminate the two-thirds vote requirement for other kinds of bonds, and for certain sales and property taxes. If enacted, it will become far too easy to pass all kinds of tax hikes, so the Howard Jarvis Taxpayers Association is actively fighting this legislation.

Special Interest Groups Intent On Unraveling Tax Relief

Wealthy special interest organizations are out there scheming and planning, especially like-minded people in the realtor community that are secretly, and not so secretly, aiming to unravel California property tax breaks – such as the CA Associations of Realtors, who bankrolled Proposition 19,  replacing Proposition 58 in 2021. 

The CA Associations of Realtors donated $40.4 million to their crusade; and $47.57 million total bankrolled this effort to convince Californians with deceptive yet clever public relations and marketing.  Naturally, there were other organizations that chipped in, that do well with state government cash and don’t want homeowners to save big on property taxes, as property tax revenue feeds those organizations and their financial interests.

Proposition 15, the property tax measure, also promoted by the realtor community, was designed to overturn Proposition 13’s commercial property tax protections, and was defeated by a hair. Had it passed, most residential rentals and business rentals, thanks to inflated commercial property taxes from an unraveled Proposition 13, would have gone sky high – taking prices of all goods and services in California with it…and would have carried the future of California with it…. downhill!

Special interest groups such as the Realtor organizations pushing these anti property tax relief efforts, have got to learn that you can’t weaken and in many cases destroy the lives of millions of the  39,538,223 citizens residing in California – simply to benefit 131,551 real estate brokers. Weakening the financial life of millions just to make some realtors and real estate brokers a little wealthier just doesn’t even out.

CA Property Tax Relief Heroes ~ Fighting the Good Fight

This is precisely why folks such as the Howard Jarvis Taxpayer’s Association; Assemblyman Kevin Kiley and his ACA-9 Bill to repeal Proposition 19Commercial Loan Corp led by president Kerry Smith; and others – maintaining an especially courageous effort to control property tax hikes; and keep crippling property taxes capped and equitable for California working families, for both middle class and high net worth homeowners – to keep the California American Dream of home ownership alive, fair, and affordable.

What Has Made Proposition 13 So Popular, from 1978 to Now?

Proposition 13 Saves Californian Property Owners Thousands

Proposition 13 Saves Californian Property Owners Thousands when compared to property tax systems in other states.

CA Proposition 13: Consistency and Necessity

In the 1970s property tax hikes were completely out of control. Especially for working families and middle class folks who were dependent on a fixed income… retired veterans and other government and municipal workers like retired postal workers; homeowners receiving Social Security, and retirees living on a modest pension; etc.

During the past twelve months the average home price in California accelerated by over 19%, the California Association of Realtors reports – seemingly unaware that this very statistic belies what they believe is a good thing (the unraveling of Proposition 13 and property tax relief generally in California), in actual fact it’s a good thing for realtors… not the middle class and working families across the state! In fact it shows that Proposition 13 is as necessary as ever.

Stabilizing CA Property Taxes Throughout All 58 Counties  

Kris Vosburgh, Howard Jarvis Taxpayers Association exec director tells us: “It [Prop 13] resulted in the stabilization of neighborhoods and allows people to stay in the neighborhood where they bought homes and not be forced out by increasing tax. The basic benefit to both new and old home buyers is that you know what your taxes are going to be from year to year.  One doesn’t have to shudder in fear.”

And shuddering in fear was exactly what middle class families did when tax time tolled around every year.  You never knew what your tax hike was going to look like. There was no stability in property taxation… No consistency you could rely on.

Before Prop 13: An Epidemic of Elderly & Retiree Foreclosure

In Los Angeles County in 1975 and 1976, over 400,000 senior  homeowners, many who were elderly, in their 80s or 90s, could not pay off their property taxes, simply because they couldn’t afford the accelerated tax rates and were either at risk of being forced onto the street – or literally were put out onto the street with clothes, furniture and all! Many who were elderly folks and nowhere else to go. Not a pretty picture.

Elderly couples and other older individual homeowners living on a modest fixed income were impacted most of all by these arbitrary property tax hikes. Many were living free and clear but were in grave danger of losing their home, despite the lack of debt, mainly because they simply could not afford excessive property taxes.

And as millions of older middle class Californians were being pushed out of their homes, onto the street, the heroic Howard Jarvis assembled over 1,500,000 signatures to qualify a statewide tax measure that would finally end excessive property taxes – and protect home ownership for working families and middle class homeowners – namely, Proposition 13.

California Property Tax Relief: Facts and Case Studies

One story tells the tale aptly, with respect to the urgent, pressing  need California had for fair and equitable property tax relief… It  concerned a 56 year old criminal defense attorney by the name of Cameron Quinn, a Lido Isle resident, who lives there with his wife and 18-year-old daughter.

Beneficiaries of Proposition 13, Cameron’s parents bought his house in 1966 for $45,000. After they died, the house passed to Cameron and the benefits of Proposition 13 were his to take advantage of.  Last year their property taxes were $966 for a home assessed at $95,403. “Where else could we go where it would be less?” Mr. Quinn tells us, “The fact that the taxes are low is a salvation!” 

And of course this eventually included a property tax amendment called Proposition 58.  So with robust property tax transfers in California intact, and both official property tax relief measures working – to avoid property tax reassessment – beneficiaries and homeowners could take full advantage of parent to child property tax transfer opportunities to keep parents property taxes with unfettered ability to transfer parents property taxes; officially known as a basic parent-to-child exclusion from reassessment – all to avoid property tax reassessment on one’s primary residence.

Mr. Quinn calls Proposition 13 “a financial security blanket and a far cry from the Costa Mesa condominium where we first lived, with not much more than a television, a bed and an old piano.”

This home is more than just a product of property tax relief for Me. And Mrs. Quinn. This is where they went after their first date, where his mom, a piano-teacher, and friends serenaded the couple. And just as it passed from Mom to them, this home will be passed again from Dad to daughter. “We wouldn’t move,” said Mr. Quinn’s 57 year old wife Neeta Quinn, “This is where we’re going to live forever.”

2020-21 Dramatic Changes to California Property Tax Relief

Looking back at surprising 2020—2021 efforts in California to unravel existing middle class utilized Proposition 13 – commercial and residential property tax relief measures. Propaganda from various critics of property tax relief, and sectors of the realtor community, promoted unrealistic property tax measure Proposition 15 – and the attempted removal of tax breaks allowing exclusion from current tax rates for commercial property and business property owners; including middle as well as upper middle class apt building landlords throughout California. They, and Proposition 15, failed by a surprisingly small margin. 

Had Proposition 15 not failed, a property tax hike like Prop 15 would have created a massive statewide increase in prices for all goods and services, all across California, for working families and middle class consumers.  In other words, a tidal wave of statewide inflation. 

Opponents of property tax relief still refuse to admit that higher taxes on commercial property owners and landlords would have forced all business property owners to raise rents on most merchant store tenants – companies leasing malls… on businesses renting gas stations, super markets, drug stores, liquor stores – a tax hike that  would essentially impact all merchants renting space or storefronts,  as well as umpteenth landlords with countless residential tenants and office building owners with countless business tenants.

Quite frankly, voters that bothered to read the fine print under this tax measure found the potential affects of Prop 15 to be unimaginable, hence it did not pass.  It’s unlikely that Prop 19 would have passed had voters not been confused by the heavy promotion focused on “helping elderly homeowners” and “victims of wildfires” etc… or  had voters simply not been lazy, avoiding the complicated fine print concerning inherited homes… it’s quite likely that Proposition 19 may not have been voted into law. 

That, in fact, is what Proposition 15 or any commercial property tax hike would accomplish. So critics of property tax relief should take heed! Massive statewide inflation would occur… causing businesses and merchants to struggle with flagging sales, in response to higher prices, and related issues. Business bankruptcies would increase. And layoffs would most likely rise to excessive numbers.

When so much of your profit margin is going up in smoke, in property taxes, you’re not likely to start hiring more workers. In fact, sadly, you’re more likely to lay some people off. Not to mention the companies that would begin leaving the state altogether, moving to nearby states that offer lower property taxes, are more business friendly in terms of taxation overall, certain property taxes, hence you lose workers and in fact increase unemployment and lose tax revenue from all those folks that are not working.

On the other hand, another property tax measure, Proposition 19, was voted into law in California. Looking beyond the obvious fact that this tax measure somewhat limited the former Prop 58 parent-to-child exclusion (from paying current market rates)…  the property tax transfer process, in other words the ability to transfer parents property taxes and keep parents property taxes without limitations, when inheriting property taxes, a parent to child property tax transfer… all became more limited in terms of what heirs of parents are actually  able to exclude from current tax rates. 

Basically, people now more or less have to work a little harder to be able to avoid property tax reassessment; and it unraveled a loophole which made it easy for the next generation to avoid being reassessed at current market value. Not only that, it’s no longer possible to use Proposition 13’s 2% tax cap when purchasing investment properties, often used as vacation rentals to generate some extra cash from tourists.

However, Prop 19 does make it possible for folks that are over age 55, that are residents with homes damaged or destroyed by natural disasters like floods, earthquakes or wildfires, as well as homeowners that are disabled, to receive excellent property tax breaks. Those Californians can keep their residential property basis when shifting to a new primary residence.

A lot of homeowners are encouraged by these changes to property taxation to downsize. However, many residents are looking to do this anyway, especially older middle class residents who tend to have a  fixed, modest income from Social Security and/or lower income pensions.  And there is always an exclusion from current tax rates to look to, the ever popular parent-to-child exclusion, with a full year to move in, as a primary residence, to inherited property.

A Closer Look at 2022 Property Tax Portability & Exemptions for Seniors and Homeowners with Disabilities or Property Damage from a Natural Disaster

Property Taxes In California

Property Taxes In California

CA Proposition 19 Expanded Property Tax Breaks

The state of California now informs us that homeowners can transfer the taxable value of their original home to a replacement as many as three times during their life anywhere in the state. The expansion is part of Proposition 19, also called the Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act, that was passed in Nov of 2021.

Eligible homeowners are now able to transfer the taxable value of their primary residence to a “replacement residence” that is also a primary home – anywhere in California, within two years of the sale of the initial property.

Another improvement is the fact that this tax benefit can be taken advantage of three times in ones’ life, as opposed to homeowners’ previous ability to take advantage of this only once, and only in certain counties. Ironically, these property tax breaks offer homeowners relief from excessive limitations – while limiting tax measures such as the popular parent-to-child exclusion, or the ability to transfer parents property taxes and keep parents property taxes, inheriting property taxes, and property tax transfer in general, to avoid property tax reassessment.  Property tax breaks that have helped so many middle and upper middle class homeowners over the years.

Property Damage from California Wildfire

The proponents of Proposition 19 make sure that everyone knows how pleased they are that there are absolutely no limitations for homeowners whose homes were destroyed by wild-fire, or forest fire. This sounds generous, and in some ways it is. However, when you sit back and consider it carefully, it’s not terribly realistic.

You have to ask yourself – how many times in a lifetime is someone’s residence going to be destroyed or seriously damaged by wildfire, or a forest fire? If it’s more than once, it’s doubtful that it’s an accident. Yet the fact remains that California wildfires are spiraling more out of control year after year actually making new property tax breaks for homes damaged or destroyed by wildfires extremely relevant.

In fact, experts tell us that we are now experiencing the worst trend of wildfires ever seen in California, as there has been more wildfire damage in 2020—2021 for example that in the previous three years combined, with millions of acres and thousands of homes and structures having been destroyed by uncontrolled wildfires.

Replacement Property Transfers

However, as most Californians know by now, Proposition 19 has also revised how California residents are able to transfer their property tax base to a “replacement property” in other ways, now with the benefit of being over age 55; of suffering from a severe disability; in addition to owning property that has been damaged or destroyed by other forms of natural disaster such floods or earthquakes, which is not unrealistic, and is actually rather likely, at least in Southern California, just as wildfires are.

California State Board of Equalization (BOE) website Chairman Antonio Vazquez has said recently, “Seniors, the severely disabled, and victims of wildfires or natural disasters can now move to a replacement home anywhere in California and avoid significant property tax increases if eligible. Property tax relief can be beneficial for those especially on limited incomes or who have been affected by wildfires or natural disasters.” Even Mr. Vazquez avoids mentioning unlimited tax breaks during a lifetime for victims of wildfire.

Property Destruction by Natural Disasters

If your property is damaged or destroyed by a calamity, such as a fire, earthquake or flood, you may be eligible for property tax relief.  You may also qualify if you own damaged business equipment and fixtures; orchards or other agricultural groves; or aircraft, boats and certain manufactured homes.

Damaged or destroyed property can be reappraised based on its current condition, and your tax burden will be adjusted accordingly.  Property owners may be able to apply for a deferral of property taxes owed without penalties or interest until the county assessor has had time to reassess the property and correct the tax bill.

As for residential properties, homeowners must have been victimized by a minimum of $10,000 in property damage, or at least 10% of their property’s value, whichever is less, to be eligible for property tax exclusions, or exemptions. Once a home has been rebuilt, the tax basis will rebound to the pre-damage value. Moreover, the base year value of a damaged house can even be transferred for many homeowners.

CA County Tax Assessors

It is important to remember that homeowners claiming disaster caused property tax relief, or their legal representative, must file their claim with the County Tax Assessor’s office inside of 12 months from the date of the property damage; and can even extend the deadline, depending on the county.

County Tax Assessors throughout California can be located here.
 

A Solution For Common Inheritance Disagreements

A Solution For Common Inheritance Disagreements

A Solution For Common Inheritance Disagreements

Many of us who work with estates, heirs and beneficiaries; supplying members of estates with various financial services, loans or cash advance services mainly — frequently see a large number of estates with family problems, typically surfacing in the form of one or more heirs attempting to get more than their fair share of inherited assets, in any number of various illicit or unethical ways.

We see co-heirs insisting they should be receiving a higher percentage of inherited property, or more from a cash account than was apparently written into the will.  We frequently identify conspiracies within estates experiencing problem like this; often between brothers, to illicitly remove inherited assets from another heir, often a vulnerable, formerly trusting sister, more often than we’d like to see.

We often see siblings hiring their own lawyers to ward off siblings that are attempting to receive a larger amount of inherited assets than their fair share.  A pricey but necessary expense. In short, this is a rarely reported problem of inheritance pilfering that, if successful, can cost victimized beneficiaries or heirs a great deal.

We can assume these situations reflect families that tend to not get along very well, and yet you hear time and time again that these siblings got along very well until a parent passes away and inheritance cash became an issue. 

Beneficiaries waiting for an inheritance often claim they got along well with their siblings until a cash inheritance materialized, and then squabbling began and grew into a genuinely heated conflict; with heirs blatantly attempting to help themselves to inherited assets reportedly belonging to other heirs.

This is where a popular solution to estate problems between siblings is introduced — to simply buyout problematic siblings, for  far more than an ordinary buyer would be likely to offer.  As most of us know by now, this involves a loan to an irrevocable trust from a trust lender; used in concert with Proposition 19, formerly with Proposition 58. 

This often initiated by one heir who wishes to keep their parent’s home in the family, while buying out property shares being inherited by frequently unwanted co-beneficiaries with a large  loan to an irrevocable trust… Heirs looking to keep their parents property generally try to get in under the wire, or seek legal counsel, to take advantage of property tax transfer, their right to transfer parents property taxes, and keep parents property taxes.  Inheriting property taxes through a parent to child property tax transfer child transfer and parent-child exclusion, to avoid property tax reassessment.

This process generally involves a fairly large 6-figure to 7-figure loan to an irrevocable trust, in conjunction with a parent-to-child exclusion (from property tax reassessment at current or fair market rates) – providing enough cash to create an equal trust distribution to all beneficiaries being bought out.

Property Ownership that is Excluded from Reassessment

Inheriting Property Taxes in California

Inheriting Property Taxes in California

California residents voted Proposition 19 (Assembly Constitutional Amendment No. 11), into law on Nov 3, 2020 – and became active on Feb 16, 2021; changing the parent-to-child exclusion and adding other tax relief exemptions involved with inheriting property taxes in California.

Reassessment Exclusions and Property Tax Exemptions

Regardless of revisions of any kind, an exclusion from property  reassessment at current property tax rates still allows parents to transfer their primary residence or in certain cases a “family farm” – to their children, as heirs avoiding full reassessment; as long as they move into their home as a primary residence once the property transfer is complete, or if it’s a farm, as long as they continue to use that property legitimately as a functional farm.

If a home is being transferred, heirs have to claim a “homeowner’s exemption” to prove that that the home is being used as a primary or principal residence. As most people know by now, this exclusion is now under limitations as to the assessed value of the home, plus $1,000,000. Even if all the “i’s” are dotted and the “t’s” are crossed the home will be reassessed at current market value if it exceeds the existing assessed value plus $1,000,000. Moreover, the “Claim for Reassessment Exclusion” and “Claim for Homeowners’ Property Tax Exemption” must be completed and filed.

Pro Rata & Non Pro Rata Distribution

Even though the parent-to-child exclusion (i.e., parent-child exemption) applies to non pro rata trust distributions from a parent to their children (heirs) – this never applies to transfers between siblings… So many think it’s better to give the trustee managing the trust the power to distribute equal cash assets to the heirs as pro rata distribution, rather than allow a trustee to give the children different values… 

Of course, when a trust loan is applied to the process in conjunction with Proposition 19 (formerly Prop 58, passed in 1986), it is as pro rata distribution, so all beneficiaries selling off their inherited property shares will receive equal revenues from the sale, typically from one heir, or multiple beneficiaries, looking to keep their inherited parental property, while keeping their parent’s low property tax base, as stipulated and protected by CA Proposition 13. 

Avoiding Property Tax Reassessment & Property Tax Hikes

As long as a beneficiary moves into an inherited home as a primary residence within 12-months of the passing of the parent, the beneficiary can transfer parents property taxes and keep parents property taxes when inheriting parental property and subsequently inheriting property taxes in California. A  property tax transfer (inheriting property taxes in California) still goes hand in hand in California with a parent-child transfer, namely a parent-to-child exclusion, to avoid property tax reassessment or fair market property tax rates. 

Which is why it is so important to keep up with correct information on any current property tax hikes…  Plus, staying current with any new releases from the Legislature regarding property tax breaks, or new rules for property tax transfers.  Moreover,  it really is critical to keep up to date on all pertinent, accurate  and timely property tax news and resources for transferring property taxes in California

Working With a CA Trust Lender or Property Tax Consultant

A pro rata distribution of the assets of an estate means that each heir receives an equal portion of each asset in the estate. A non pro rata distribution means that each heir receives an equal proportion of the entire estate but not necessarily of each asset.

Should the children of the grantor parents decide to trade properties after the distribution of the trust – any real estate will certainly be reassessed.  That’s why it’s so important to have a trust lender or a property tax consultant at your side before you plunge into all of this, if you are a middle class homeowner and can’t afford an expensive real estate attorney. That’s perfectly understandable.  Join the crowd…

Establishing a Low Property Tax Base in California

Property Taxes in California

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?

California Change in Property Ownership

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.

Tax Basis Portability & New CA Property Tax Relief Benefits

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.