Proposition 19 Impact on Property Taxes in California
Proposition 19 Impact on Property Taxes in California
Now that the popular Proposition 58 tax break system has changed into tax measure Proposition 19 – these are some of the key issues specific to modern Proposition 19 property tax relief.
These changes cover real property parent-to-child transfers after Feb 16, 2021. Whether key outcomes are based on the death of a parentbefore Feb 16, 2021, or based on deeds filedafter Feb 16, 2021, is still questionable, whether Proposition 19 would apply, or if California parent to child exclusion from property tax reassessment, derived from Proposition 58, will apply – with respect to parental property tax transfer.
We believe the bottom line is simply to continue applying political pressure on those in power in this state – to make sure the California property tax system continues to provide genuine property tax breaks for residents, with the ability to avoid property tax reassessment via Proposition 19 (formerly Prop 58 and its’ parent-child exclusion) in concert with a loan to an irrevocable trust – keeping a low property tax base when inheriting a home, when buying out property shares from co-beneficiaries through a trust loan; with the ability to keep parents property taxes, with the right to transfer parents property taxes, getting the most out of Prop 13 and Prop 19 property tax breaks upon the transfer of a home, when inheriting property taxes.
Positive Changes Affecting Heirs & Homeowners From Prop 19
1. One major change is that Proposition 19 eliminates the parent-child and grandparent-grandchild exclusion from reassessment for properties other than a primary residence.
2. California homeowners over the age of 55 or with severe disabilities (which is still not defined as to what the exact definition of “severe” is) will have the ability to transfer their current property tax assessed value (i.e., “base year value transfer”) of their primary residence to another primary residence anywhere in California.
This change eliminates the problem of not being able to take advantage of Prop 58 and its’ parent-child exclusion in all 58 counties in California – in terms of being approved, or not approved, for a base year value transfer.
In other words, Proposition 19 is strictly statewide, without obstacles blocking your ability to avoid property tax reassessment in some counties, while there is no problem avoiding property tax reassessment in other counties! That type of bias towards homeowners and beneficiaries in some counties caused a lot of problems in California.
This change enables residents to purchase a more expensive home rather than a more inexpensive home to keep tax the relief benefits of the base year transfer. If a more expensive primary residence is purchased, there is now a rather complex formula to minimize the increase in base year value. Moreover, Proposition 19 now increases the number of times the exclusion may be used, up to three times in a lifetime.
The Proposition 58 parent-child exclusion and other tax breaks have now changed into the Proposition 19 Parent to Child Property Tax Transfer
As most Californians are aware, a home undergoes reassessment at “market value” if it’s transferred, inherited, sold or gifted – and, in turn, taxes on the property often increase significantly. Yet, if the sale or gift or transfer is between parent and offspring, in certain situations, the home won’t undergo reassessment once specific requirements are met and the relevant application is filed properly.
As we know, a new homeowner’s property taxes are calculated through the time honored, low Proposition 13 base year value, typically what parents had paid… as opposed to so-called “fair market value” or “current market value” when new property is acquired – gifted, bought, generally inherited… As most homeowners know by now, real estate transfers excluded from property tax reassessment by Proposition 58 or Prop 193 have to be used as a principal residence (with no value limit).
For those of you who are extra detail oriented – Proposition 58 is established in section 63.1 of the Revenue and Taxation Code. It’s also worth mentioning that, with respect to Proposition 193, parents of a grandchild do have to be deceased prior to property transfer from grandparent to grandchild. Alternatively, the grandparent’s child can be deceased, with the surviving parent-in-law being remarried prior to the transfer event.
The below bullet points may untangle some of the confusion that has formed around some of these property tax breaks. We need to take note that property tax relief limitations built into Proposition 19 are presently serving as a replacement to the pre-Feb 2021 Proposition 58 parent-to-child exclusion, also referred to as a “parent-child exemption” (from property tax reassessment).
Some of the new Proposition 19 tax breaks are a work in progress, however most have been given a stamp of approval by the BOE
• Proposition 19 was more or less rushed through the political and electoral process, passed by the CA Legislature in under a week, and placed onto the Nov 2020 ballot, changing the California state constitution without implementing the appropriate statutes. Homeowners’ ability to transfer parents property taxes, in other words the right to keep parents property taxes on any parental property tax transfer, inheriting property taxes from Dad or Mom… and enabling heirs to keep parents property taxes are sill in place as valid tax breaks, allowing beneficiaries or heirs to avoid property tax reassessment – the process is just more limited than it was previously.
Moreover, establishing a low property tax base along with the transfer of property between siblings, sibling-to-sibling property transfer – buying out a sibling’s share of inherited property through a trust loan, in conjunction with Prop 58, is still firmly in place, however inheriting property taxes from Dad or Mom is now limited somewhat by Proposition 19. Similar limitations are now in place as well concerning the process of inheriting property taxes from a parent, the parent to child transfer and exclusion for reassessment of property taxes, or parent-child exclusion (from property tax reassessment at current market rates).
• Sections of the approved documentation and revisions to various sections are vague at best and often unclear
• To correct these issues, Santa Clara County Tax Assessor Larry Stone was appointed by the California Assessors’ Association (CAA), with four other tax Assessors, to a hastily formed CAA “committee” to try to provide some clarity to the new Proposition 19 implementation process.
• The CAA “committee” has enlisted supposed specialists and tax lawyers throughout California, and is working with the Board of Equalization (BOE) to furnish guidance and where necessary recommend passage, on an urgency basis, towards implementing appropriate statutes.
• Homeowners over the age of 55 (or “who meet other qualifications” which remains vague) would be eligible for property tax savings when they move. To avoid property tax reassessment at current or “fair market” rates, beneficiaries inheriting property from parents must move within 12-months into an inherited home, using this property only as a primary or principle residence.
• Likewise, the parent leaving the home to beneficiaries must have been residing in that home as a principle or primary residence. Apparently, going forward into 2021 and beyond, there will be no exceptions to these new rules and regulations.
• Only inherited properties used as primary homes or farms would be eligible for property tax savings. Those who are “severely disabled”, or whose homes were destroyed by wildfire or a “natural disaster” can now transfer their primary residence’s property tax base value to a replacement residence of any value, anywhere in the state. This was considerably more limited prior to Feb 2021.
• Eligible homeowners can now take advantage of “special rules” to move to a more expensive home. Their property tax bill would still go up but not by as much as it would be for home buyers that are “not eligible”.
• Eligible homeowners may use these “special rules” three times in a lifetime. (for declared disaster victims, there is no limit on the number of times these benefits can be used.)
A claim form must now, as of Feb 2021, be completed and signed by the transferors and transferee and filed with the Assessor. A claim has to be filed within three years after the date of purchase or transfer, or prior to the transfer of the real estate to a third party, whichever is earlier.
If a claim form has not been filed by the date specified above it will be timely if filed within six months after the date of mailing of the notice of supplemental or escape assessment for this property. If a claim is not timely filed the exclusion will be granted beginning with the calendar year in which you file your claim.
Will California Reinstate Propositions 58 Property Tax Transfer Laws?
Assembly Constitutional Amendment 9 (ACA 9) has been introduced by Assemblyman Kevin Kiley, of Granite Bay, CA – to formally reinstate Propositions 58 and 193, and return the parent-child exclusion to full unlimited measure; without imposed limits, to the CA state constitution – restoring the ability of parents and grandparents to pass on property to the next generation without any deceptive obstacles and/or property tax increases.
The CA Legislature Assembly Constitutional Amendment 9 was introduced by Assembly Member Kiley on May 03, 2021, regarding property taxation & the transfer of an inherited home to a principal residence, for beneficiaries.
ACA 9 is written into the official California record, as follows:
“The California Constitution limits the amount of ad valorem taxes on real property to 1% of the full cash value of that property, defined as the county assessor’s valuation of real property as shown on the 1975–76 tax bill and, thereafter, the appraised value of the real property when purchased, newly constructed, or a change in ownership occurs after the 1975 assessment, subject to an annual inflation adjustment not to exceed 2%…
The California Constitution, until February 15, 2021, excluded from classification as a “purchase” or “change in ownership” requiring reappraisal the purchase or transfer of a principal residence and the first $1,000,000 of other real property of a transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased.
On November 3, 2020, the voters approved Proposition 19. Pursuant to Proposition 19, the California Constitution, on and after February 16, 2021, removes the above-described exclusion from classification as a “purchase” and “change in ownership” requiring reappraisal, and instead excludes from classification as a “purchase” and “change in ownership” the purchase or transfer of a family home or family farm, as those terms are defined, of the transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased, if the property continues as the family home or family farm of the transferee. In the case of the exclusion so provided to a transfer of a family home, the California Constitution, pursuant to Proposition 19, requires the transferee to claim the homeowner’s or disabled veteran’s exemption within one year of the transfer.
This measure would repeal the above-described provisions of Proposition 19. The measure would reinstate the prior rule excluding from classification as a “purchase” or “change in ownership” requiring reappraisal the purchase or transfer of the principal residence and the first $1,000,000 of other real property of a transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased. The measure would apply retroactively to all effected purchases or transfers occurring on or after February 16, 2021.”
Prior to 1978 with the advent of Proposition 13 becoming law, capping property tax reassessment at 2% for owned property in California, residents found themselves paying arbitrary property tax hikes more and more often, with elderly homeowners, living on a modest fixed income, being evicted when they couldn’t pay egregious tax hikes, which started to become a frequent event; and began to alienate and anger the middle class public, to an extreme degree. It wouldn’t be an over-statement to say this widespread displeasure opened up the doors wide for a tax break like the parent-child exclusion! Property tax breaks that enabled the middle class all across California, when inheriting property from parents, to feel justified, just like the wealthy, to be keeping a low property tax base when inheriting a home.
Middle class residents in Californians, and working families, were frustrated that rapidly rising property values had turned property taxes into what was effectively a “death tax”. It was this overall response from the public throughout the state that left events wide open, in terms of following and supporting Howard Jarvis and his Taxpayers Association – adopting the property tax relief measure they called Proposition 13.
Under Proposition 13, which passed in a landslide in 1978, property tax assessments could no longer increase more than 2% per year until, or unless a new owner took over the property, which triggered a reassessment at current market rates. Middle class offspring inheriting their parents’ home usually figured out right away that they were going to have a real problem paying reassessed property taxes, as that tax bill was typically more than most middle class families could afford to pay every year.
So in 1978 Californians happily accepted the ability to keep parents’ property taxes, transfer parents property taxes, and inheriting property taxes instead of paying egregious tax hikes. The right to finally have access to a property tax transfer from a parent, a parent-child transfer, or parent-child exclusion, was huge for California property owners… in fact, even for renters. And certainly for residential and business, or commercial, property owners.
Then, having tasted some of “the good life”, in terms of saving on taxes, formerly enjoyed only by the nouveau riche and old money, Californians, in 1986, voted in high numbers and passed a measure called Proposition 58 with the approval of more than 75% of California voters. This amended the California constitution, to state that the transfer of real estate between a parent and a child, generally property transferred from parent to an heir, would not be considered a “change of ownership” and would fall under a new property tax reassessment exclusion, something they called “a parent-child exclusion”; capping their property tax bill at the same rate their parents paid.
Under Proposition 58 and Proposition 193, working families could transfer a home of any value plus up to $1,000,000 of assessed value of additional real estate. This protected families that owned a small business, or a condo or duplex that was rented out for income, or a vacation property. Therefore the death of a parent would not trigger a sudden reassessment of these properties at current high market rates, increasing yearly property taxes to such a degree that middle class beneficiaries would be forced to sell their inherited property shares right away.
“…a slick advertising campaign for Proposition 19 tricked voters into repealing Propositions 58 and 193 without realizing the impact it would have on their own families. Prop. 19 replaced the parent-child transfer exclusion from reassessment, which has been in the state constitution for 35 years, with a narrow exclusion that only applies to homes that the heirs move into within a year and make their permanent principal residence.
These harsh provisions took effect with lightning speed in February, at a time when families were prevented by the pandemic from meeting with other family members, attorneys or tax advisers. Many people are just now finding out what happened. Letters are going out from county assessors to grieving families advising them of their new tax obligations.
This must be fixed. And it can be if Californians make their wishes known to elected representatives. ACA 9 would preserve family businesses, affordable rental properties, and home-ownership for families that otherwise would lose the benefit of the hard work their parents put in to secure their futures.”
Proposition 19 Tax Hike Versus Proposition 58 Property Tax Breaks
The slim-margin success of California property tax hike Proposition 19 has been due to an odd combination of elements. Not held up by a great deal of media support – yet enjoying all the benefits of a massive promotional budget, with first-rate brand awareness and PR; etc. – allocated by several established high-profile organizations lending a great deal of credibility to the Proposition 19 campaign.
Proposition 19 concentrated on the (supposed) well-being of seniors; on the enhanced profitability of the California realtor community, and on the escalated financial health of the state educational system. Although all the Proposition 19 public relations language supported all those focus points… how sincere it was remains to be seen. Oddly enough, press and media support never mirrored the robust financial support that Proposition 19 enjoyed.
Meanwhile, a tremendous parade of well heeled organizations backed the Proposition 19 tax initiative, and fought hard to get it passed, donating some $46,458,168.88… The astounding amount of capital raised to get the proposition passed was led by the California Association of Realtors, donating a stunning $35,710,000; National Association of Realtors, with $4,823,500; California Professional Firefighters Ballot Issues Committee with $100,454; and the Operating Engineers Local Union No. 3 Issues Advocacy/Ballot Initiative PAC with $10,000.
Other supporters were California Senior Advocates League, California Statewide Law Enforcement Association, Californians for Disability Rights, Congress of California Seniors, California State Federation of Labor, CalAsian Chamber of Commerce, California Black Chamber of Commerce, California Business Roundtable, California Forestry Association, California Hispanic Chamber of Commerce, and the California NAACP State Conference – just to name a few. The full list of supporters is extraordinary.
The California Legislature boldly claims that local governments and schools could “gain tens of millions of dollars of additional property tax revenue every year…” These extra revenue gains, they anticipate, “might grow over time… to a few hundred million dollars per year.” “Might” and “could”… But no one knows for sure. Many feel these numbers are exaggerated.
Did those politicos running California, along with the real estate organizations who had enough in their war-chest to throw $40,000,000 at this tax bill – ever consider that a large number of family farms and other companies will go under, as they have said they are in danger of doing due to overly high taxation, Covid, and poor sales… and will stop paying taxes altogether at that point.
Property tax transfer, namely the right to transfer property taxes, parent to child transfers and parent to child exclusion, is always dangerous to play games with; or to try to “fix” a system that isn’t broken… that has been in place for decades, working well for property owners and requiring no need of fixing.
Many who are not in danger of going under have claimed they are fed up with the high cost of doing business in California — and tax hikes of any kind would push them over the line, forcing them to leave California for more corporate-friendly states, with lower taxes in general. They may not have the right to transfer property taxes in a new state, however their income tax and living expenses in general are likely to be far less expensive than in California.
Did any of the short-sighted folks pushing property tax increases like Prop 19, limiting and even removing the right to transfer property taxes as well as high income tax, ever stop to consider that in the final analysis California loses out on a lot more tax revenue going down this avenue. In fact, if you examine the ten highest income tax states (or legal jurisdictions) you see right away how high taxation already is in California, even before property tax increases…
New Jersey 10.75%
District of Columbia 8.95%
New York 8.82%
Not only that, if you factor in the thousands of good white collar and blue collar jobs that exit with those companies when they leave the state, take note of the fact that those jobs are gone forever! Moreover, all those workers put an additional strain on the system, collecting unemployment checks plus no longer themselves paying out taxes on the level they were before… Many of them in fact leaving the state to find work in nearby states with lower taxes and lower living expenses. Again, less tax revenue going to the California. Did this not occur to anyone in the State Government, smart folks with PHDs and MBAs and law degrees…? You would think it would have.
Opposition in the Press
Yet with all that financial support – press and media support was stunningly low, in terms of support for Proposition 19. Editorial Boards opposing this property tax ballot looked something like this:
• The Orange County Register Editorial Board: “But Prop. 19 is best understood for what it is: an attempt by real estate interests to accomplish what they couldn’t accomplish two years ago by pandering to the state’s firefighters union. This is a special-interest measure that seeks to raise hundreds of millions of new tax revenues to appease yet another special interest. Prop. 19 has one good feature — portability. Counties ought to enable it forthwith, as a few already have done. But Prop. 19 is a cash grab, not tax reform; it’s not fair to property heirs, and it buys off a union so it has a better chance of passing. Vote it down.”
• Mercury News & East Bay Times Editorial Boards: “Prop. 19 merely plugs one hole in the state’s porous property tax laws while creating another. It’s time for holistic reform that simplifies the system and makes it more equitable. This isn’t it. The longer a person had owned their current home, and already benefited from inordinately low tax bills due to Prop. 13, the greater the tax break on the new property. And those who downsize would often be competing with first-time buyers for more-affordable smaller homes. The real reform would be to abolish the tax-transfer program, not expand it. Vote no on Prop. 19.”
• The Bakersfield Californian Editorial Board: “Proposition 19 is another do-over on the ballot. Two years ago, the real estate industry spent $13 million on a similar initiative campaign to expand the program statewide and enhance the benefit for eligible homeowners. Sixty percent of voters rejected the initiative. They should do the same this year.”
• Los Angeles Times Editorial Board: “But Proposition 19 would just expand the inequities in California’s property tax system. It would grossly benefit those who were lucky enough to buy a home years ago and hold onto it as values skyrocketed. It would give them a huge tax break and greater buying power in an already expensive real estate market. It would skew tax breaks further away from people who don’t own a home or who may be struggling to buy one.”
• San Francisco Chronicle Editorial Board: “But it’s still a flawed package, designed to rev up home sales that benefit real estate agents who could reap more in commissions. It favors one narrow segment of the tax-paying public but does nothing for the rest of the state’s home buyers. The measure shows the convoluted extremes that California’s tangled property tax system produces.”
• The Desert Sun Editorial Board: “What seems clear is that the main backers of this measure — Realtors and the firefighters union — stand to gain greatly in the forms of expected increased home sales and related sales commissions and the measure’s dedication of some of the state’s ultimate new tax proceeds specifically to firefighting efforts. Firefighting must be a priority of state and local governments. Budgeting for anything so vital by this type of special interest ballot measure is the worst way to do so. Lawmakers should be making such key spending decisions in their regular budget work.”
• The Press Democrat Editorial Board: “Proposition 19 would allow people to buy more expensive homes anywhere in the state, while capping their property taxes. Moreover, they could repeat the maneuver three times. That might provide lots of business for real estate agents, but it would undercut school districts and local governments, the beneficiaries of property taxes. […] California’s tax system is overdue for an overhaul, but these measures make piecemeal changes that are as likely to create new problems as solve old ones. The Press Democrat recommends no votes on Propositions 15 and 19.”
Editorial Boards supporting this property tax ballot was slim, and looked something like this:
• San Mateo Daily Journal Editorial Board: “This would enable people in high cost areas to move more easily, opening up room for new residents to the area.”
• The San Diego Union-Tribune Editorial Board: “While critics see this as a gift to the wealthy elderly, the great majority of older homeowners are middle-income, not rich. Allowing them (as well as disabled homeowners and wildfire or disaster victims) to downsize without suffering a huge property tax hit is a humane policy that helps people retire with much less financial stress. It would also promote fluidity in home sales, increasing the availability of larger homes for families with children.”
In California, Governor Gavin Christopher Newsom signed an executive order on May 6th, 2020, to extend the deadline for homeowners who were scheduled to pay their property taxes on April 10th – and to extend business property owners’ deadline of May 7 to complete and file their business property statement. This was supposed to “provide relief for taxpayers suffering financial hardship due to COVID-19”. Moreover, Governor Newsom referred to his offer to taxpayers as “property tax relief…”
To be clear, we neither support nor oppose the governor of California here at Property Tax Transfer. But when we hear something this blatantly disingenuous coming from any politician, we simply must question it. Property tax relief is property tax relief. Property tax relief is Proposition 13 or Proposition 58… Genuine property tax relief in California is the lessening, or lowering, or complete elimination of – property taxes. What Governor Newsom is referring to is not property tax relief… It’s property tax deferment. Putting off payment for a few months. We would appreciate it very much if political leaders in California would not use such an important term as “tax relief” falsely.
Now, it is entirely possible that the Governor actually wanted to forgive payment completely for certain taxpayers. And under the severe conditions imposed on all of us due to the Coronavirus health crisis and resulting job losses, and lower income suffered by millions of workers in the state – the governor could very possibly have been besieged by political colleagues, and talked out of tax relief – into tax deferment… However, why not hold out and insist on giving taxpayers a real break through enhanced Proposition 58 and Proposition 13 – or actually forgive most of these property taxes completely for one year, or at least discount them considerably? According to state economists, it would not even have amounted to one quarter of the tax cuts the federal government gave to the wealthiest Americans two years ago!
Many economists have asked, why is it that a few hundred billionaires and multi-millionaires recently received hundreds of thousands of dollars in tax cuts as “tax-welfare” and “corporate-welfare”, so to speak. Yet, in the midst of an unprecedented health crisis, resulting in the worst job loss disaster since the Great Depression – 160 million middle class and working class property owners received nothing even close to the trillion dollar tax cuts afforded to just a handful of mega-wealthy families only a couple of years ago.
Many financial analysts in California have pointed out that the folks in power in this state did not mind shelling out trillions then – yet now on a state level, when middle class taxpayers desperately need an obvious financial boost such as a property tax cut, or property tax break, the best our state government can do is come up with an essentially useless tax deferment proposal, and no actual tax cut… or tax relief. These analysts do have a point.
Local government apologists claim that the $140 billion in property taxes that California typically receives every year is urgently needed right now to pay for essential pandemic services – to cover the cost of public health departments in 58 counties; to cover public hospitals; and – to pay for the school system, which is always sort of tacked on, as if they can’t find that money anywhere else. Local California government agencies insist that they stay open only due to funding that is largely based on… property taxes.
State agencies wrote a letter to the Governor, stating, “Delaying such a large infusion of general funds for two to three months would have a serious impact on their ability to provide these services.” They did not even want to go along with the proposal for deferment that the governor suggested!
Some folks in the press wisely asked – is not keeping millions of Californians (many whom are elderly, and living on a fixed income) from being evicted and completely losing their home not an “essential pandemic service”?
Gov. Newson has forced businesses to shut down, and most certainly will again, understandably and with good intentions – sending workers home to try to slow the spread of Covid 19. Admittedly, the pandemic is out of control in California, as it is in many red states. Folks in all these states want their “freedom”… and so it looks like they are therefore free to avoid wearing masks, free to contract Coronavirus, and free to infect others.
The Governor, ignoring this mass appeal for freedom, closed down businesses back in May anyway. As a result, many homeowners were not able to pay their property taxes. Companies all across California have closed to comply with Governor Newsom’s shutdown order to slow the spread of the Coronavirus that causes COVID-19 respiratory complications. Yet if you’re going to close down those companies, hopefully temporarily, and send workers home at half or no pay – wouldn’t it make sense to then give those workers a significant financial break, as in increased property tax breaks… somewhere along the line, somehow? Such as Coronavirus Prop 58 and Proposition 13 property tax relief!
Certainly homeowners and beneficiaries inheriting property from parents can still get a trust loan to buyout co-beneficiaries, and lock down a low property tax base… but reinstating Proposition 58, in terms of the changes Prop 19 has brought about, and adding more teeth to existing property tax breaks that can save Californians significant amounts of cash every month… Would be so relevant during a pandemic, that it’s almost absurd to have to bring it up — when it’s not even in discussion in the Congress or the Senate. Not to mention the California Legislature.
So… when the governor calls a two or three month property tax deferment “property tax relief”… it’s no wonder that taxpayers reacted negatively. Property tax relief refers to lowering the amount to be paid. Not deferring the payment date!
Governor Newsom told us recently that more than 1.6 million Californians have filed unemployment insurance claims, which the state is struggling to organize and process, to get those checks out. It’s fine to send folks that are out of work unemployment checks – they have paid into that every working week. But wouldn’t it make even more sense to give them all a property tax break, eliminating Proposition 19 restrictions in light of the Covid outcomes? Preferably forever… But at least as long as the Covid virus rages?
It’s time we ask ourselves – exactly what kind of affect will CA Proposition 19 most likely have on California?
There is a lot more to this than meets the eye. As of June 6, 1978 California has been the one state in America with direct access to a low tax base model, becoming accustomed to the classic Prop 13 property tax cap… working in tandem with the 1986 Proposition 58 protected property tax transfer & parent to child exclusion, making it possible thanks to Proposition 58 for homeowners & commercial property owners to avoid property tax reassessment at current market rates. Basically forever, as long as they retained the property they inherited.
Proposition 19 has now cut deeply into critical Proposition 58 property tax benefits, closing the door on the parent to child exclusion (i.e., parent to child exemption), if a property owner is not able, for whatever reason, to move into their inherited home within a year after the passing of the parent that has left the house and/or land to his or her heirs.
A quote from the Los Angeles Times summed it up succinctly on Oct. 19, 2020:
“ …a qualifying homeowner who owns a home with a taxable value of $200,000 that is worth $600,000 on the market would pay roughly $2,200 in property taxes now. If the homeowner moves to a $700,000 house, the homeowner would pay $3,300 a year in property taxes under Proposition 19. Without the initiative, the same homeowner would pay $7,700 annually…”
Of course they forgot to mention that this property tax “initiative” must be implemented strictly within a year after the decedent passes away. Or the door to the tax break slams shut.
Yet, adding absurdity yet again to redundancy, the Los Angeles Times once again repeats the one, almost comical, example of “families taking advantage” of this sort of property tax relief, using your right to a parent to child transfer exemption… indicating repeatedly that there are numerous examples of inherited homes and Prop 13 as well as Prop 58 tax breaks being used by all these rich folks as money making outrages , renting our inherited properties on the beach for $16,000+ per month, and never using it as a primary residence.
Yet it truly is comical that after 40 years we still have not heard about one other specific family in California engaged in this sort of money-making practice, but “Jeff Bridges and his siblings”. Now, we’re certainly open to hearing about other families involved in property tax transfer activities like this, inheriting property taxes from parents at a super low base rate every year, just to be a beachfront landlord raking it in every year from other rich people who are addicted to sun and surf. Yet no other family name ever surfaces.
And again and again we hear about this one family, the Bridges, taking advantage of Proposition 13 by renting out luxury homes to wealthy residents… once again in the LA Times in Oct. of 2020,
“The provision has since been dubbed “the Lebowski loophole” after The Times found that “The Big Lebowski” actor Jeff Bridges and his siblings had advertised a beachfront home in Malibu inherited from their parents for nearly $16,000 a month in rent despite an annual property tax bill that’s a fraction of that amount.”
So is the LA Times telling us that they simply cannot come up with one other family that inherits a luxury property like this and then makes a killing every year renting it out?
The ability to avoid property tax reassessment, to exercise your right to a parent to child transfer exemption, even for a modest secondary property from parents, really can be a life saver for middle class residents who are not rich, and need every break they can lay their hands on. This conspiracy theory that gives Californians the impression that these tax breaks are mainly for wealthy property owners is completely false. If anything, you could call it a middle class tax break, period… and you’d be 100% truthful.
Now all of a sudden that tax break is gone unless you move into your inherited property within one year of having inherited it. Is this simply to upset the Bridges family? And if you don’t move into your inherited home as a primary residence within one year you will lose your property tax transfer benefits… you will lose your parent to child transfer exemption. You won’t be able to transfer parents property taxes, there will be no inheriting property taxes fro parents. If you miss that 12-month deadline your ability to keep parents property taxes will evaporate completely. And if you don’t think this is real, guess again.
Critics of property tax relief in California, proponents of Proposition 19, repeatedly tell us, “Fine! What’s the big deal anyway? You can move into inherited property within a year and then enjoy your right to avoid property tax reassessment forever! So what’s the problem:” Well… the problem is that perhaps some beneficiaries can’t make that move so easily within year one. Perhaps this is not the most realistic tax revision ever voted into law.
Over 650,000 new homeowners, beneficiaries, took advantage of a Proposition 58/Prop 13 tax break over the past ten years; that gave them the right to maintain their parents’ low property tax base upon inheriting a home from a parent. How many heirs or beneficiaries inheriting a home this way over the next ten years will lose inherited property because they will not be able to move into their inherited home smoothly, without problems, as a primary residence within 12 months?
No one knows exactly. However, we can safely say – a lot! More revenue for the Legislature. More homes on the market for realtors. More cash to pay off unfunded state government pensions. That, we know.
There are a myriad of reasons why Proposition 19 will turn out to be inconvenient and awkward at best – to be, at worst, an unnecessary tax measure that will effectively fray the fabric of the estate and property inheritance system in California. For example:
• Ones’ job may be an extra 60, 90, whatever, hours away on the freeway getting to work from this new inherited home from mom or dad – and then back again after work.
• Perhaps a spouse also may have significant travel issues, to and from work, regarding distance to and from a new home.
• School for children can easily be an issue, if an inherited home is in a new school zone. All familiarity, neighborhood friends, teacher relationships, social relationships – all gone, if they’re near where you lived previously. This can cause all sorts of issues for children.
• A beneficiary could be disabled; and prior to moving abruptly within a year, may need to start fixing up an inherited home to accommodate disabilities – generally costing a good deal of money to implement physical changes of this kind, ramps, safety measures in various rooms, etc.
• Many beneficiaries are senior, which would make such an abrupt move very difficult at best – and for many, downright impossible.
• There is also the matter of selling your inherited house, most likely for a good deal less than it’s probably worth due to Covid issues affecting many California properties; over the next decade.
• Lastly, and ironically, all this hub-bub regarding additional presumed mountains of revenue from new Proposition 19 driven property taxes will, if Jon Coupal and the Taxpayers Association are correct, serve mainly to pay for unfunded state government pensions. Perhaps a small fraction for the schools system… But that’s about it.
So, as we originally indicated – there is a lot more to this issue than meets the eye.
The Los Angeles Times, in their inimitable fashion, put it like this on Oct. 19, 2020:
“About 650,000 California homeowners over the last decade received a tax break that allows them to maintain their parents’ low property tax payments when they inherit their homes…
The provision has since been dubbed “the Lebowski loophole” after The Times found that “The Big Lebowski” actor Jeff Bridges and his siblings had advertised a beachfront home in Malibu inherited from their parents for nearly $16,000 a month in rent despite an annual property tax bill that’s a fraction of that amount.
Proposition 19 would eliminate this property tax break for investment homes and commercial properties, meaning that heirs who inherit their parents’ properties would pay taxes based on market value. With some limitations, children who move into homes inherited from their parents would be able to retain the tax break.“
Interesting how the Times gives credence to deceptive wording, while confusing the so-called benefits of Proposition 19. They parse the actual Prop 19 rules and regs, and purpose in fact…twisting the facts to read, “Proposition 19 would eliminate this property tax break for investment homes and commercial properties…” Prop 19 does not now exist to eliminate investment homes and commercial properties. It exists to eliminate the parent to child exclusion, or parent to child exemption… unless you change your life and move into a new inherited home within a year.
Interesting that The Times chooses to leave out the fact that inherited property will be sold off at a loss by inheritors who may not be able to move into inherited property within a year… because middle class homeowners, 95% of the folks affected by this new tax law, won’t be able to afford the new property taxes without the parent to child exemption being utilized within that year one after mom or dad dies.
Instead of telling it like it is The Times tells us, “With some limitations, children who move into homes inherited from their parents would be able to retain the tax break.” Sure, “some limitations” meaning those folks inheriting property must uproot themselves and set up a new life within 12 months, plus sell the home they are living in, or give up their inherited home at a financial loss. And maybe they can’t just up and leave their current residence, sell it, and move to a new home that was owned by their parents, that perhaps does not suit them and their family. For a number of reasons.
Proposition 19 doesn’t exist to eliminate greedy real estate investors… It exists to push middle class home owners out of the way, to force them to sell inherited property if they can’t uproot themselves and move into their inherited home within a year while figuring out a way to sell their own home. In a market hampered by Covid, where maybe it’s not so easy to sell that home they’ve been living in. These are not investment sharks and real estate hustlers, as the Los Angeles Times is falsely hinting at. These are regular middle class home owners.
This new tax law affecting property tax relief in California was put in place to generate more money for realtors and the CA Legislature. Directly impacting consumers. Regular folks, like you and I. Not to eliminate “property tax breaks for investment homes and commercial properties”. That is, we’re sorry to say, a false characterization.
Abruptly, the entire state found out at the last moment, prior to the November vote, that C.A.R. had launched Proposition 19, along with the California Legislature, which passed by a few votes; due mainly to an extremely clever, albeit a bit deceptive, marketing campaign – confusing voters while hiding the fact that Prop 19 exists to kill parent to child exclusion benefits, bit by deceptive bit. Don’t be fooled, completely unraveling the parent-to-child exemption is their eventual goal. Not giving residential and commercial property owners the ability to avoid property tax reassessment every year.
This type of tax break frees property owners from chronic stress based on unpredictable property taxation that is typically high for middle class incomes. This form of property tax relief makes life in general more secure and more affordable for middle class and even upper middle class residents. Rich folks we don’t really need to worry about. They’ll be fine either way. This type of tax relief allows beneficiaries to keep parents property taxes, and of course gives them the ability to transfer parents property taxes when inheriting property; avoiding property tax reassessment, keeping their tax base low through CA Proposition 13.
What is truly incredible to many of us is the ability for a beneficiary in California to use Proposition 58 to get a special loan providing cash to co-beneficiaries through an irrevocable trust, for middle class beneficiaries who want to smooth out cash obstacles (often referred to as “equalizing liquidation”) when it comes to conflicts between siblings who want to sell property versus family members who prefer to keep inherited real property… an invaluable property tax benefit. Which is exactly why it’s so important to understand how and why Prop 19 exists to kill parent to child exclusion benefits at some point in the future… This is the C.A.R. and CA Legislature’s first baby step in that direction.
All states, forever grappling with this Covid crisis, should be heading towards tax breaks for regular middle class people, and not wasting the country’s time with absurd tax law benefiting a few wealthy corporations, a couple of hundred billionaires and multi-millionaires, with huge tax cuts they do not really need; and corporate welfare for immense companies that would be just fine without it. While a couple of hundred million Americans struggle by generally without tax breaks or tax loopholes of any kind to help them put away some extra cash in the bank every year.
In fact, all states need a Proposition 13 and Proposition 58, to help middle class families get by every year. That’s why beneficiaries or heirs in every state who are expecting real property, or are leaving real property to their own heirs, should conduct some careful research on blogs and Websites that focus on inheritance matters, to get more familiar with Proposition 58 and trust loans, on beneficiary issues and CA Proposition 13. They should study informative niche blogs like this one… as well as other niche Websites that cover property taxes in depth… that delve into California Proposition 13, 58 and 193, as well as how trust loans can help beneficiaries.
All resident should learn more about why Prop 19 exists to kill parent to child exclusion benefits, bit by bit; how to keep parents property taxes and how to transfer parents property taxes, inheriting property taxes, or property tax transfer, parent to child transfer and parent to child exclusion – for residential properties of course; however, also for business oriented sites and commercial properties… that take full advantage of Proposition 58 — making use of trust loans to buyout inherited property from siblings, such as simply to get the facts straight on the transfer of property between siblings, how to buy out siblings share of a house; what makes sibling to sibling property transfer work; and how loans to irrevocable trusts help co-beneficiaries get cash while avoiding the necessity to sell their share of the inherited property.
Then, once they get your pitch together, folks in all states can tell their congressional representatives to get moving on passing property tax law for middle class home owners, not just rich folks that live in lovely upscale neighborhoods!
Many of us wonder when it got to this point in this country, when virtually the only way you can have a genuinely comfortable, safe, secure life is if you are fabulously wealthy – and nothing below that or in between.
It’s no surprise to anyone in California that if commercial property owners, landlords, business and industrial facility owners ever have their property taxes increased by any tax measure like Prop 15 – rents will go up for business tenants and apt. dwellers. Most goods and services in the state will go up, increasing the cost of living and negatively impacting 40 million consumers in the state of California. Companies that can’t abide higher taxes will soon leave California, to more empathetic states, and they will take their jobs with them.
If Proposition 15 ever returns, or comes back with another name, with more deceptively effective marketing. It is indeed a mystery as to why the Legislature in California would want to impact the entire state in this fashion. They claim it’s to fund the school system. According to Jon Coupal at the Taxpayers Association and other analysts and state economists, this is merely a thinly disguised ruse to pay for a few hundred unfunded local government staff pensions. Either way… is it worth it, to impact 40 million Californians this way?
It appears that Proposition 19 will now become tax law in California. Removing the so-called parent to child exemption, also called parent to child exclusion or parent to child transfer; destroys a critical property tax relief benefit from homeowners… No longer allowing residential property owners to avoid property tax reassessment every year – which effectively destroys property tax relief in the state of California.
Another related process that may well be affected by Proposition 19 are trust loans, used in conjunction with Proposition 58. These days, called intra-family loans to trusts to minimize property taxes, with one small, successful boutique firm in Newport Beach, Commercial Loan Corp, opening this historically exclusive, restricted elite-door for families of all incomes and backgrounds – formerly open only to V.I.P.s and mega-wealthy families – now open to all middle class and upper middle class California residents.
Where visionary Commercial Loan Corp CEO Kerry Smith’s concept for trust loans are used in conjunction with Proposition 19 (formerly Prop 58), to buyout a co-beneficiary’s inherited property; also referred to as a sibling-to-sibling property transfer; while locking in a low property tax base. Keeping property taxes inherited from parents, plus fulfilling the need to equalize cash going to co-beneficiaries who wish to sell the same inherited property to outside buyers… walking away with less than if bought out by a trust loan organized by co-beneficiaries.
In California, Proposition 58 protects families that owe thousands of dollars in property taxes, while they organize and resolve related issues, typically over a 17 or 18 month period, settling an estate after the passing of the decedent leaving property to his or her heirs. Under Proposition 58 (voted into law overwhelmingly in 1986), a home and up to $1 million of assessed value of other real estate are excluded from reassessment when transferred between parents and children. This keeps the property tax assessment the same as if the property was still owned by the surviving parent.
People should research and get more familiar with these great tax breaks, at Websites like the BOE site at https://www.boe.ca.gov, covering Proposition 58; Or, informational Blogs and Websites like this free resource Blog, that focus on Prop 13 and Prop 58 as well as trust loans working in concert with the right to buyout a co-beneficiary’s inherited property; on business Websites like Trust and Estate Loans or Proposition 58 / Trust Loan specialists such as Commercial Loan Corp. Folks need to get their facts straight, and begin calling and emailing their political representatives, to get them working on property tax relief like they have in California!
To be fair, every single state in America should have property tax breaks like this – not just for wealthy folks and massive companies… but for everyone… regular middle class Americans. What is so difficult to understand about this? Are working class people in states other than California going to keep voting in the interests of billionaires, which is OK, but against their own best interests? Against property tax breaks for middle class or working class families? Now that makes no sense.
The fact of the matter is, especially during an endless pandemic, every state needs property tax breaks like they have in California, Proposition 13 tax relief benefits, the ability for beneficiaries that are inheriting residential or commercial property from parents to avoid property tax reassessment for the rest of their life if they hold on to that property — and even a secondary property as well. Proposition 13 has saved California taxpayers over $500 billion – saving the average middle class family over $60,000… since 1978.
People ask, what is so crucial about CA Proposition 58; important enough to stop a Proposition 19 tax upheaval to unravel Prop 58 and Prop 13 parent to child transfer ability, the parent to child exemption or exclusion. Which every state should have in one form or another. That’s the point here. Tax relief allowing you to save on the transfer of property from parent to sibling and sibling to sibling.
Using property tax relief solutions as an income-saving device for home owners makes it possible for beneficiaries to buyout another sibling’s share of inherited property; when getting a trust loan from a trust lender. Trust lenders advance you a loan of, for example, $400K, $500K, $700K, whatever you need to buyout a co-beneficiary’s inherited property; while at the same time you get to retain a low property tax base guaranteed by Proposition 13. Every state needs this badly right now. Especially with Covid-19 upending the US job-based economy. Every state needs CA Proposition 58 and Prop 13 type of transfer of property tax benefits and discounted rates.
Residents of all states should be communicating with their political representatives, to tell them all states in the US should be able to keep parents property taxes during property tax transfer, with parent to child transfer, or as attorneys call it, “parent to child exclusion” (from present day tax evaluation). Why should California be the only state in the union that enjoys genuine property tax relief?
As we all know, the Coronavirus crisis is not abating in many states – causing severe and consistent unemployment, and overall economic uncertainly. Certain states are floundering more than others, without any federal support of any kind, even PPE – thereby costing tens of thousands of families the lives of loved ones.
With millions of jobs initially put on hold – jobs that were placed on “furloughed” status or were standard “lay-offs”… are still in question, as far as resurgence is concerned. Regrettably, it’s impossible to determine the exact number of jobs lost, as some return: whereas others do not. Therefore, constant fluctuations make permanent calculations difficult to nail down.
Making matters even more challenging, the federal government historically calculates “unemployment rates” by adding up the number of workers signing up for unemployment checks; and deduce an unemployment rate in this fashion. However, once workers stop getting unemployment checks they somehow magically disappear off the grid. As if they somehow were never in the system.
It would be safe to say that unemployment, nationally and statewide, remains at critical levels. And yet California is still the only state in the union that provides middle class residential and commercial property owners with genuine property tax breaks.
And this is exactly what every state in America needs right now, with unemployment and Covid still spiraling out of control. Lowering property taxes would surely loosen up some cash to help working families buy food and maintain some decent health coverage, plus put some money away for emergencies.
If we were able to get property tax measures passed in most states, similar to the mega-popular tax breaks California home owners and commercial property owners enjoy, the overall positive cumulative affect on American tax payers would be significant. Folks would be able to easily transfer parents property taxes, and keep transfer parents property taxes, or buyout while inheriting property taxes at a low base rate.
Especially in times like this – shouldn’t we all have access to property tax relief like this? An intra-family loan to a trust, using Proposition 13 and Proposition 58 type of property tax transfer benefits and tax breaks, with parent to child transfer or as law firms refer to it – parent to child exclusion, or exemptions.
Do some research and push your Beltway representatives in Congress to put together some bills like California has passed to help home owners and commercial property owners. And you can use the Covid crisis for added motivation. This is covered on informative, accurate niche Websites such as Commercial Loan Corp.
An intra-family loan to a trust in conjunction with Proposition 58, or Prop 193, makes it possible to maintain a low property tax base basically forever upon a beneficiary buyout of sibling property shares, or as realtors call it, “the transfer of property between siblings”, and “lending money to an irrevocable trust“ – typically from an irrevocable trust loan lender.
While you’re at it, take a look at the CA State Board of Equalization to find out how all this works, or research niche info blogs such as this one, Property Tax Transfer… Plus other sites focused on property tax breaks for Californians. And let’s be frank… Living in that state, although there are great benefits, is admittedly expensive – in relation to many other states.
States like New York, Texas, New Jersey, Connecticut, Massachusetts… are all expensive states to reside in. With zero property tax relief or significant tax breaks of any kind – unless you’re a multi-millionaire or billionaire. Then you get nothing but legislated V.I.P. tax cuts. However, firms like Commercial Loan Corp, or Paramount Property Tax Appeal, provide V.I.P. property tax breaks or V.I.P. personal business and property tax reduction to everyone…. regardless or income or overall net worth.
A couple of things worth mentioning, as we’re on the subject of replacing political noise with fact-based information…
The Coronavirus driven mortgage foreclosure and credit card default catastrophes are coming, given the tens of millions of people that are unemployed nationally… with millions unemployed in California alone. Let’s not forget that. And the CA Legislature wants to raise property taxes in the middle of a pandemic?
Making matters even scarier for people, there is talk about eliminating the payroll tax, unraveling Medicare, and Social Security so those programs are defunded by 2023. Not a particularly good idea in the midst of a Covid-19 pandemic, where we saw 84,000 people infected in one day last week. Does California really need a tax hike on property, in a time like this?
We’d have to say no. We don’t need a Proposition 19 to unravel crucial elements making up the foundation of property tax relief in California… And we don’t need a Proposition 15 to take away much needed tax breaks for already struggling landlords and commercial property owners in the state of California. Frankly, we also do not need politicians politicizing the Coronavirus crisis, and we don’t need PR and disinformation from the federal government.
What we do need, however, are some ways to help home owners, and renters, spend less while unemployment rages – and afterward as well. We need a permanent property tax relief system in place in the United States, just like they have in California, to genuinely help Americans spend less and save more. Making sure, for example, that we have the ability to transfer parents property taxes, when inheriting property taxes, so we can avoid property tax reassessment. Without present value tax assessment taking a large bite out of our savings every year.
And of course on top of parent to child transfer protections, we need, just like Californians have – the legal right to transfer parents property taxes when inheriting property taxes; with the ability to keep parents property taxes, in other words property tax transfer that maintains everyone’s property taxes at a predictable low base level, say 2% no more, with iron clad parent to child transfer of low property tax rates when we inherit property from our parents or parent – or, as attorneys call it, “parent to child exemption”. Exclusion from present day property tax evaluation… avoiding property tax reassessment. As they do in California.
Californians take these property tax relief measures for granted! Buying my brother’s share of our house or the transfer of property between siblings; Buying out siblings’ share of a house; Buying out property shares through cash to a trust loan from a trust lender, such as Commercial Loan Corp, for example. Imagine that. Meanwhile,.
Most Americans don’t even know what these terms even mean, or what Proposition 13 or Proposition 58, or trust loans, even signify. Just do some initial research on sites like https://cloanc.com/category/prop-58 to learn up on trust loans with Proposition 58 or Prop 193 – keeping a low tax base upon beneficiary buyout of sibling property shares, or as realtors call it, “the transfer of property between siblings”, and “lending money to an irrevocable trust“ – typically from an irrevocable trust loan lender.
Just take a careful, thoughtful look at CA State Board of Equalization, at https://www.boe.ca.gov/ or do some easy research on info blogs like https://propertytaxnews.org simply to get the basics down, so you know what you’re talking about when you talk to snooty staffers answering calls at your representative’s office in Washington DC.