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.
Proposition 58, and of course Prop 13 tax relief, as well as trust loans to buyout co-beneficiaries while locking in a low tax base, has been a life saver for so many estate heirs and trust beneficiaries in California. Life everywhere is hard these days for middle class residents, and California is an especially expensive state to live in. Moreover, inheriting a home from a parent is a major asset, and being able to save thousands of dollars on property taxes during the initial property transfer, and yearly, certainly adds value to the good fortune provided by these property tax breaks.
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?
These property tax benefits are indeed genuine, and actionable for mostly middle class families. Not rich movie stars like Jeff Bridges. The parent to child transfer exemption has always been there for middle class home owners and beneficiaries… since 1986, and actually since 1978 with the advent of Howard Jarvis’ Proposition 13.
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.