New CA Parent-Child and Grandparent-Grandchild Property Transfer Rules Under Proposition 19

California Prop 19 Rules for Transferring Property Taxes

California Prop 19 Rules for Transferring Property Taxes

As an updated review of sorts, we would like to revisit certain Proposition 19 issues governing California property taxes. These issues have become particularly important to beneficiaries and new homeowners in particular throughout the state. The following updates address measures that are especially popular with homeowners…

In terms of basics, it’s important to reiterate that under Proposition 19 an inherited home can be transferred from a parent to their child/heir without triggering property tax reassessment, with the right to keep parents CA property taxes. However it’s essential these days to pay more attention to deadlines and filing stipulations — whereas previously this was not as necessary.

Beneficiaries frequently want to know if a parent died prior to Feb 16, 2021, but the change in ownership forms were not filed with the assessor until after Feb 16, 2021 — if the parent-to-child exclusion (from current property tax rates) is applied under former Proposition 58 measures, or if it is applied under current Proposition 19 tax measures, with the ability to keep parents CA property taxes…. The confirmed answer is that an inherited property transfer is calculated by date-of-death to determine the official date of change of ownership.

A good number of trust beneficiaries inheriting real property from a parent, considering their option to buyout siblings’ inherited property shares, often ask trust lenders if a parent is leaving a family home to three siblings/heirs, will that family home be the primary family home of all three heirs — or just the one heir.  And it turns out that only one sibling/heir is expected, under California tax law, to take over that family home as a primary residence. Yet all three siblings still have to be valid heirs.

Beneficiaries and heirs of an active estate, inheriting assets, often ask their attorney about the correct time-frame to establish an inherited family property as their “primary family home”…  Estate attorneys typically confirm that beneficiaries inheriting a house from a parent who wish to keep parents CA property taxes on a property tax transfer, when inheriting property taxes, are expected to establish that house as their “principle family residence” within 12-months of the purchase or transfer of that inherited property, if they want to avoid property tax reassessment using their existing ability to transfer parents property taxes, when inheriting property taxes from a parent. 

Yet heirs are still being able to take advantage of their right to a parent to child property tax transfer on an inherited home  and a  parent-to-child exclusion; even with all these confusing and sometimes baffling new rules for property tax transfers in California  additional intra-family options are available to heirs such as buying out co-beneficiaries’ property shares on a sibling-to-sibling property share while keeping a low property tax base when inheriting a home.

If beneficiaries or heirs are inheriting a family farm, they often look to their estate lawyer, or trust lender, for answers… if they are looking to buyout co-beneficiaries to retain the inherited property for themselves – at their parent’s low property tax base – to find out if the Proposition 19 parent-to-child exclusion (from current tax rates) also applies to family farms.

In other words, does a family farm also have to be a principal or primary residence of the inheriting beneficiaries or heirs… And the answer is no, the family farm does not have to be the principal residence of the inheriting parties in order to qualify for the parent-to-child exclusion. A family farm is viewed as any real property which is under cultivation or which is being used for pasture or grazing, or that is used to produce an agricultural product.

Many Californians want to know if Proposition 19 is retroactive; if property transfers that have already benefited from Proposition 58 parent-to-child exclusion benefits are going to be reassessed… And they are informed that Proposition 58 applies to transfers that were implemented on or prior to Feb 15, 2021. The current Proposition 19 ability to keep parents CA property taxes applies only to transfers that take place happen after Feb 16, 2021.

An inherited house, when transferred from a parent to their child/heir – is expected to be the “primary family home” of an heir. Beneficiaries or heirs frequently ask their property tax consultant or attorney how long they need to reside in or maintain their inherited property as “a primary family home” to be able to retain the parent-child exclusion. The answer is unequivocally that the Prop 19 exclusion applies only as long as the heir, or beneficiaries, reside in inherited  property as their “principle family home”.

In the event that a family home is no longer used as the primary residence of a beneficiary inheriting a home, that property should receive the factored base year that applies, had the family home not qualified for exclusion at the time of purchase or transfer. The new taxable value will be the fair market value of the home on the date of inheritance, adjusted yearly for inflation. 

Hence, an updated look at certain new parent-child and grandparent-grandchild property transfer rules and regulations under Proposition 19. 

Why Consulting With an Attorney, a Property Tax Specialist or Trust Lender is Crucial Now, When Inheriting a Home in California

Inheriting a Home in California

Inheriting a Home in California

When inheriting a home from parents, one should always have a reliable estate attorney, if we’re looking to transfer a parent’s property taxes or we’re inheriting assets in trust or in a standard estate or probate; with an experienced eye on all  proceedings, especially the process of “equalizing trust loan distribution among beneficiaries” if a trust loan is a part of the process – a phrase often used by property tax specialists, and frequently misunderstood by heirs and beneficiaries.

“Equalizing trust loan distribution” simply means that each heir or beneficiary / sibling intent on selling their shares of inherited property  left to them by a parent, will receive an equal amount of money… settling expenses when there is little or no cash in the trust. 

Paying off a debt that a parent or grandparent has on a home can impact beneficiaries looking to borrow, as well as lenders. Having a competent attorney who knows how to structure a trust so that beneficiaries looking to keep inherited property at their parent’s low property tax base can retain that family property… while making sure that co-beneficiaries intent on selling their inherited property get an equal share of cash from a loan to an irrevocable trust.

This is where an experienced trust lender comes into play, preferably a lender that provides trust funding with their own capital, which ensures that interest charged will be as low as possible. Not using expensive money from investors, lenders with their own capital are free to charge as little as they wish, in terms of fees. In fact, a trust lender like this is free to exercise extreme flexibility with underwriting, maintaining particularly reasonable terms and conditions; as well as being able to implement trust loan transactions quickly, in seven to ten days.

It’s always worthwhile to hear what an experienced property tax relief specialist, in this case property tax consultant Michael Wyatt at Michael Wyatt Consulting in Corona CA, has to say about working with an established trust lender that typically provides five and six figure irrevocable trust loans with their own private capital –

A private money lender that loans to irrevocable trusts, applies for and works in tandem with California Proposition 19… So all the beneficiaries [in the family] who are looking to sell their real property shares – for the purpose of facilitating “non pro-rata distribution”, in other words getting an equal share of the entire overall estate – however not necessarily of every asset.

If there is a family that goes to a conventional, pricey lender like Wells Fargo for instance – they will always require adult children, beneficiaries that want to sell an inherited property, to ‘go off-title’, and that always triggers present-day tax reassessment. And that spells an expensive 66.66% tax hike!

If the family in question uses the Commercial Loan Corp, a company we have been using for years… the loan they provide is to a trust, and not to beneficiaries; so there is no title, and no crippling 66.66% property tax reassessment. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America. Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients.

Compliance for both commercial and residential property owners is far less strict. Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying interest on their trust loan in advance. Not only that, there is never a “due-on-sale” clause… that requires the mortgage to be repaid in full when sold; or that all or some of the interest owed must be paid up-front to secure the mortgage. No “alienation clause”… in the event of a property transfer, stating that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. There is none of that.

Having access to private capital, along with seasoned advice, and expertise from a property tax consultant and a trust lender on how to transfer a parent’s property taxes,  becomes even more crucial in an inheritance scenario when a family is looking to keep a family home for a long period of time. 

California Proposition 19, which was (voted into law in 1986) formerly California Proposition 58, can enable a parent-to-child home transfer of a “principal residence” to be excluded from property tax reassessment even if associated with a “change in ownership”.  Which could trigger reassessment of property taxes, often by accident, resulting in  property tax reassessment – if not for experienced guidance from a trust lender and, frequently, from a property tax consultant or tax attorney as well, guiding the trust loan process and  property tax transfer; working in concert with Proposition 19 and parent-to-child exclusion (from high current  market rates).

Advice from property tax transfer specialists like this generally includes guidance for beneficiaries and new home owners within the process of being able to transfer a parent’s property taxes, plus showing inheritors what they need to do to keep parents property taxes when inheriting property and subsequently inheriting property taxes from a parent.

Michael Wyatt Consulting may be contacted at (951) 264-6152 for questions on retaining a parent’s low property tax base; and how to transfer a parent’s property taxes, through CA Proposition 13; or with questions about getting a loan to a trust, in conjunction with CA Proposition 19.

 

Changes to California Property Tax Relief in 2021

Changes to California Property Tax Relief in 2021

Changes to California Property Tax Relief in 2021

The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act (AKA: Prop 19)

For homeowners in California , it’s important to have a good general understanding of how property tax relief is changing. Fortunately, Californians finally do have a clearer understanding of what property tax measure Proposition 19, passed into law on Nov 3, 2020 by voters in the state of California, is really all about, as well as how Proposition 58 has changed, in terms of property tax reassessment.

A lot of property owners in California aren’t aware of the fact that Proposition 19 was also entitled, “The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act” – A peculiar, overly wordy title; indicating that seniors, severely disabled people and victims of wildfires or natural disasters will be able to transfer the taxable value of their “original residence” to a “replacement residence” up to three times during their lifetime – anywhere throughout all 58 counties within the state of California.

California State Board of Equalization Chairman Antonio Vazquez said, in regards to the new tax measure, Proposition 19: “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.”

What is the California State Board of Equalization (BOE)?

For all of us who have heard all about BOE for many years, yet have not really understood what the California State Board of Equalization was really all about – it would be a good idea to sit down for a moment and look more closely at the BOE, and see what it is that they do, and how they break down the new Proposition 19 tax measure. 

For starters, the CA State Board of Equalization is literally the only elected tax board in the United States. It contains four Equalization District Members, positioned by locale, plus the State Controller. BOE’s legal responsibilities encompass the management of 58 County Assessors to make sure assessment best practices are in order statewide, without deviating from the set rules and regulations.

Believe it or not, the State Board of Equalization also assesses the property of public utilities along with regulated railroads, and takes in revenue from private railroad car tax. BOE also manages “Alcoholic Beverage Tax” and “Tax on Insurers”; plus property tax administration, promoting “fair and equitable assessments” – protecting tax revenue that school systems, local communities, and the California Legislature depend on, year after year.

Dispelling Confusion Around Proposition 19

The BOE also clarifies some of the confusion surrounding Proposition 19 and its’ ability to help residents avoid property reassessment, in contrast to Proposition 58; confirming that middle class seniors, age 55 and older… often  living on a modest fixed income; or those severely disabled, must meet specific requirements to qualify for new property tax breaks.

Both an “original” and “replacement residence” has to meet special requirements in order to be eligible for the homeowners’ or disabled veterans’ exemption. An application has to be completed and filed with the County Assessor to enable transfer of any taxable value. Finally, a “replacement residence” must be purchased or newly constructed within two years of the sale of an original home. If the market value of a “replacement residence” is greater than the market value of the “original residence”, the difference will be added to the taxable value when transferred.

As far as victims of a wildfire or natural disaster are concerned, similar requirements apply but there are no age restrictions. In order to qualify, a residence has to be seriously damage by a wildfire or a legally verified (frequently “governor verified”) natural disaster.

Parent-Child Exclusion, Originally Under CA Proposition 58

It is true that CA Proposition 19 limits property tax relief under CA Proposition 58, most notably the parent-child exclusion.  This eliminates the $1,000,000 assessed value reassessment exclusion as in a parent-child transfer of residential property that is not a primary residence. This obviously limits the parent-child transfer exclusion from property tax reassessment to primary residences only. 

Yet as long as that criteria is met, Californians can avoid property reassessment, keeping a low property tax base when inheriting a home; as long as the parent leaving the property resided there as a principle residence as well, plus beneficiaries inheriting the property make sure they move in within that 12-month deadline, the California parent to child exclusion from property tax reassessment is protected by Proposition 19, formerly by Prop 58.  As long as this type of property tax transfer, Prop 19 property tax break, is used properly, and the move into an inherited home occurs within one year of inheriting property taxes from a parent.  To reiterate, taken over by the beneficiary, or heirs, as a primary residence; in order to avoid property reassessment.  And according to the new tax laws, as of Feb 2021,  this is the only method left to residents, after Proposition 19 limits are imposed, to be able to  successfully transfer parents property taxes – and keep parents property taxes, basically forever.                     

Transfer of Assessed Value to a New Residence

To review, the other major changes to property tax relief for California property owners, as we touched on a moment ago, is relief for homeowners age 55 and older, folks with a disability, or victims of a wildfire or natural disaster. These residents are now able to transfer assessed value of their primary residence in any county in California – to a home they have just bought, or a newly constructed “replacement residence” used as a primary home.

These new Proposition 19 measures apply to real estate anywhere in California, if you are a resident of the state or not.  Which is a positive change – plus, certain property tax breaks used be accessible only in certain counties.   Californians with vacation homes, residential homes that are for rent, or commercial properties (owned outside any corporations, partnerships, limited liability companies, etc.) may not be able to avoid property reassessment, and may have to face property tax reassessment burdens, and may want to seek legal counsel or help from a trust lender or property tax specialist or consultant.

Taking Advantage of Every Key Property Tax Break

Taking Advantage of Every Key Property Tax Break

Taking Advantage of Every Key California Property Tax Break

As a CA homeowner – how do you ensure, as with a parent-child transfer,  that you’re not paying more property tax than you should?

California homeowners are hit with some of the highest property taxes in America.  So the key question we face every year is – how can we legally decrease our property taxes?  As we all know – although it’s worth a second look due to the various confusing changes imposed as of 2020,  2021 – two most popular systems we can utilize to lessen our property tax burden involve tax breaks, contained in the 1978, 1986 and 2021 property tax measures entitled  Proposition 13, Proposition 58 and Proposition 19.

To clear up some of the most confusing issues associated with Prop 19 which now implements the classic parent-child transfer or parent-child exclusion (to avoid paying current property tax reassessment, or “fair market” rates), we’ll have  to examine the updated key tax breaks associated with this type of property tax relief in California, as confirmed by the CA State Board of Equalization (BOE).

To review what most of us probably already know – if you inherit a home to be used as your primary residence from your parents or from your children, who used the property as a primary residence,  you can successfully avoid property tax reassessment at fair market rates. This special treatment also applies if you acquire the home from your grandparents (avoiding property tax reassessment through the Proposition 193 grandparent-to-grandchild exclusion), but only if both of your parents are deceased.  Naturally these processes include any basic property tax transfer designed to avoid property tax reassessment, to transfer parents property taxes when inheriting property taxes from a dad or a mom, or from grandparents.  The point being to keep parents property taxes at all costs, through a parent-child transfer.

As of February 16, 2021, an inherited home must be used as your primary residence if you wish to avoid property tax reassessment upon it. Additionally, if the difference between the property’s assessed value and fair market value is more than $1,000,000 at the time of transfer, the new assessed value will be the fair market value minus $1,000,000.

Irrevocable Trust Loans & Proposition 19 Property Tax Exclusion

Changes to CA Proposition 58 property tax breaks became active Feb 16, 2021 due to Proposition 19 – trust lenders all across Southern and Northern California are busier than ever, helping Californians who are  inheriting a home from parents, as well as beneficiaries inheriting residential property – establishing a low Proposition 13 property tax base for all inherited property going forward.

On top of all that, beneficiaries who are intent on keeping an inherited home are given, through Proposition 19, formerly Proposition 58, the ability to buyout co-beneficiaries, typically siblings, who are looking to sell their shares in the same inherited property… Only with a lot more cash in hand than a non-family outside buyer would pay for the exact same property.  

In fact, the need for middle class families to establish a low property tax base  for newly inherited property has become so urgent that well known estate & trust lender Commercial Loan Corp in Newport Beach is now offering heirs and beneficiaries inheriting a home from parents a free consultation on parent-child transfer preparation, as well as an estimate of property tax savings overall – to keep their parent’s low property tax base.  This Free Consultation for Property Tax Savings helps evaluate the benefit of a loan to an irrevocable trust, specifically for beneficiaries who want to keep inherited property at their parents’ low property tax rate, with the formerly Prop 58 [now Prop 19] parent-child transfer – to avoid current market reassessment.  This often involves an unusually fast and inexpensive buyout of siblings looking to sell their share of the same inherited home and/or land.

So to reiterate – by originating loans to trusts and estates in probate, a trust lender like Commercial Loan Corp helps to maximize the distribution of funds to a trust or estate; allowing beneficiaries to buyout inherited property from co-beneficiaries, while keeping a low property tax base when inheriting a home.  When providing mortgages to trusts or estates in probate, a good trust lender helps clients  avoid the re-evaluation of property at current tax-rates – enabling families to retain a parent’s low Proposition 13 tax base – by obtaining a parent-child exclusion, with a  parent-child transfer… saving on average $6,200+ per year in property taxes. If you need assistance with a trust loan in order to equalize a trust distribution to qualify for Proposition 19 or Proposition 58, we highly recommend you call Commercial Loan Corp at 877-756-4454. 

The Trust Loan Process From the Inside Out

Tanis Alonso, senior account manager at the Newport Beach trust lending firm, offers an experienced inside viewpoint on the trust loan transaction in conjunction with the Proposition 58 and Prop 19 exclusion from paying high current property tax rates:   

Let’s say a property value is currently one million dollars and the current tax base is $1,200. If they were to get reassessed at current value that would be around $11,000 annually.  By someone keeping the property and obtaining a trust loan to properly buy out their siblings that allows the beneficiary that is keeping the property to keep parents property taxes, to retain 100% of the Proposition 13 tax base that was paid by their parents and keep that low property tax base of $1,200.

This of course creates much greater affordability than if they were to improperly buy out their siblings and have that property reassessed. The loan to trust goes hand in hand with the Proposition 58 [now Proposition 19] property tax transfer system, creating enough liquidity to equalize distributions, not sell, and allow a beneficiary to keep their parents property with their low property tax base. It does sound counter intuitive – yet it’s true…

A Property Tax  Appeal Can Lower Taxes on Your Home

County property tax assessors in all 58 California counties assess every homeowner’s property tax by multiplying each home’s taxable value by existing applicable tax rates.  The taxable value is typically based on purchase price, generally referred to as “base-year value”.  However, tax authorities do have the right to increase taxation by up to 2% every year in tandem with inflation, plus reassess the tax value of most real properties under certain specific circumstances. 

For example, if a property owner makes changes to his or her property, such as home renovations, or  adding a large swimming pool, or perhaps building an additional wing or modernizing a kitchen or bathroom, whatever – the county tax assessor who gets a copy of that property’s building permits, might possibly reassess, if a decision to do so is made at that time. And this is when discrepancies or errors sometimes occur, when a tax assessor is also able to initiate a separate base-year value on any new renovations or re-constructed areas attached to a home. Mistakes are often associated with these reassessments.   

Therefore, one effective way to lessen your property tax burden is to reduce the assessed value of your home by filing an appeal stating that  the home’s assessed value is less than the value the tax assessor assigned to it.  

The appeal might prove that the home is in much worse condition than the assessor factored into his or her assessment… or perhaps prove that newly constructed changes to the home were not nearly as extensive as the final property tax assessment showed. Tax reduction firms typically handle county tax assessor challenges of this kind, tax appeals, and this is generally the direction most residents go in, in order to submit a successful appeal, in keeping with the CA State Board of Equalization Property Tax Dept.

California State Board of Equalization County Assessor Directory

The BOE publishes a helpful online guide that explains property tax exclusions in detail. For further information about applying an exclusion to your property inheritance, home or living situation, and any required forms you need to complete the deadline for filing these forms, contact your local tax assessor by consulting the BOE county assessor directory.

Prop 58 Parent-Child Exclusion Has Morphed Into Prop 19 Property Tax Breaks

Prop 19 Property Tax Breaks

Prop 19 Property Tax Breaks

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.

California’s unique Proposition 58 tax break enables new homeowners or beneficiaries to avoid property tax reassessment when inheriting real estate and liquid assets; upon receiving a home or other real estate from a parent – or vice versa. When a home, for example, is sold, given as a gift, transferred as an inheritance, or transferred through a trust.  However, the fact remains – inheriting property taxes from Dad or Mom is now more limited than it was before.

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.)

Filing Requirements

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.

Getting the Most Out Of Prop 13 and Prop 19 Property Tax Breaks

Getting the Most Out Of Prop 13 and Prop 19 Property Tax Breaks

Getting the Most Out Of Prop 13 and Prop 19 Property Tax Breaks

Residents in California that Benefit from Proposition 19

Focusing on senior residents and of course wildfire victims in the promotion of Proposition 19 was an extremely clever move by the CA Legislature. The state has been in the midst of another catastrophic series of natural fire storms  at the same time that voters were being introduced to the Proposition 19 tax measure; and voters certainly were personalizing what it might feel like to lose their home, in a matter of minutes, to fire… and of course this connection did not go unnoticed by the folks promoting Prop 19.  

Proposition 19’s backers ran sentimental, heart-tugging ads and even poured cash into the firefighter’s union.  Nonetheless, Proposition 19 only just passed with a little over half of the vote, 51%.
 
Prop 19 is a positive financial opportunity for seniors, victims of natural disasters and fire storms, and for homeowners with disabilities; or residents that happen to be grandparents that are looking to relocate from one area to another in California, to purchase a house nearer their family, specifically their children. And it’s a positive opportunity for older married couples looking to downsize, or to upgrade to a retirement home. 

On the other hand, it is a challenge for many middle class families, that are trying to avoid property tax reassessment; that are keen on establishing a low property tax base; to take advantage of Proposition 13 transfer of property, that wish to transfer parents property taxes when inheriting property taxes. It’s important to most families when inheriting property taxes from a parent, to keep parents property taxes, on any property tax transfer with a parent to child transfer or parent to child exclusion. 

Moreover, beneficiaries looking to buyout co-beneficiaries, siblings, are always looking for help in the transfer of property between siblings, to make sure nothing goes wrong — that you can keep your parent’s low Proposition 13 tax base and properly establish a low property tax base when buying out a siblings’ share of a house.

Easy Mistakes to Make, and to Avoid, with Proposition 13 & Prop 19

A few mistakes single homeowners, beneficiaries and property owning families  can fall into quite easily:

1) Some families forget to execute a property LLC in order to protect their  property from property tax reassessment when they pass away.

2) Some heirs or beneficiaries are not aware that they must file a claim for a “reassessment exclusion” or “exemption” under Proposition 13 inside of three years after the passing of a decedent, and therefore may lose their exclusion from property reassessment.  This can be an extremely expensive mistake.

3) Some homeowners mistakenly believe that they are passing on a “principal residence” or “primary residence”  but in fact have not resided full time in that home for many years.  This will cause expensive reassessment issues for any beneficiaries.

4) Some families believe they can pass on an exclusion from reassessment regarding a multi-unit residential property, even though they only reside in part  of the property.  This will cause serious issues for any beneficiary or heir.  

5) Some heirs or beneficiaries may not understand that they must reside in an inherited property only as a primary residence, under Proposition 19, in order to take advantage of a “parent-to-child” exclusion from reassessment, establishing a low property tax base; once a parent passes away.  Non primary residence could trigger reassessment at current market rates.

6) Some families revise the title of their home without consulting their tax lawyer or property tax specialist, possibly triggering property tax reassessment.

7) Some families will include numerous beneficiaries in a living trust, along with  listing their home.  If some of the beneficiaries are not offspring and some are, your actual children, i.e., heirs, may lose their ability to avoid property tax reassessment.

8) Some families may shift an industrial facility they have inherited into an LLC for business purposes, while renting it out; triggering a property tax reassessment by not  filing the proper forms in a timely fashion.

9) A property transfer may occur without proper registration paperwork filed   with the state.  Twenty years later the new property owner may owe twenty years worth of back property taxes at vastly increased rates. This can be a devastating event, causing the current owner to lose their home.

These laws are complicated and different scenarios can be confusing. Mistakes with paperwork or filing procedure errors can trigger reassessment at current market rates; even resulting in the loss of a home.  Another reason why estate lawyers have become so important as of late!

PART TWO: California Beneficiaries Learn How to Make Prop 19 Work For Them

How California Prop 19 Works

How California Prop 19 Works

Interestingly enough, even though certain members of the press now oppose Proposition 19 as if they had been defending this position all this time – when in actual fact they had been trying to convince Californians that their Prop 58 parent to child transfer, to avoid property tax reassessment, their parent to child exclusion from being taxed at current rates, or their right to buyout a sibling’s share of their inherited property, was a negative.

When in fact they now admit that for property owners, heirs and beneficiaries inheriting property from parents – all these tax breaks are clearly a positive benefit for California residents. And in the real world, away from ideology, there is no disputing it.

So like many residents, after Proposition 19 was voted into law, the California press also found themselves experiencing “buyer’s remorse” once the dust had settled a bit and Prop 19 actually became a reality, for better or for worse.

Confusing things even more, investigative reporters at the Los Angeles Times created the “Lebowski Loophole” in 2018, named after actor Jeff Bridges. The Times reported that “Jeff Bridges, together with his brother Beau and their sister were paying only $5,700 a year in property taxes on a 4-bedroom Malibu home with access to a semi-private beach and panoramic views of the Pacific Ocean; inherited from their parents, who bought it in the 1950’s; but none of the Bridges siblings lived there.

Apparently, the Bridges family was renting out their beachfront property for $15,000 a month. This urban legend is still the only example used by the press, year after year, to support anti property tax relief arguments. They use this one example to represent a supposed army of folks doing the same thing… and yet, surprisingly, have not come up with the name of another family investing in high-end property under Proposition 13, getting off easy on taxes, and renting out their property out for huge financial gain.

In all these years, for whatever reason, the press has never come up with the name of another family as even a second example of this type of supposed “property tax abuse” showing how Proposition 13 is abused by California inheritors.

The truth is, by and large, most middle class families inheriting property are taking advantage of the parent-to-child exclusion tax break merely to survive and to be able to afford to inherit property without getting killed on the tax hit. Middle class folks that are merely trying to live with a degree of comfort and class in a hyper expensive state, where all the good things have been established with the wealthy in mind – the flashy cars, the beachfront properties, the large homes with beautiful lawns and pools, the fancy restaurants, and the red carpets… The fame and success, that everyone stops and stares at, and admires.

Still held over from Prop 58, we now have similar, albeit more limited, Proposition 19 parent-to-child exclusion benefits, for beneficiaries who want to avoid property tax reassessment; who want to keep inherited property from parents and keep parents property taxes.  They support the  transfer of property taxes when inheriting property taxes from a parent.
Property tax transfer, the ability to transfer parents property taxes, keeping property at a low base rate is top of mind for every homeowner and property inheritor in California.

Parent to child transfer – their parent to child exclusion from property reassessment is the only benefit that makes it possible to be able to establish a low Prop 13 property tax base, the same as their parents had… Plus the transfer of property between siblings, to be able to buyout co-beneficiaries who are looking to sell their inherited property shares.

In reality, this type of property tax relief, by being able to transfer parents property taxes, accomplishes exactly what is was set out to do – protect residents’ property tax rates, and give the middle class some sense of property tax stability; to have a sense of pride and security over the years.

Were it not for Prop 13, you can rest assured property taxes would be sky high by now, practically unaffordable for many; and certainly a struggle for most.

What Will CA Prop 19 Accomplish for Families Looking For a Low Property Tax Base?

California Prop 19 Info

California Prop 19 Info

The pro-Proposition 19 members of the realtor community in all 58 counties throughout California are openly enthusiastic about Proposition 19, more or less  due to an anticipated increase in property sales, accelerated broker commissions and increased property tax revenue.

Other political, partisan professionals believe in the new tax measure as well, such as Jim Brulte, California Republican Party former chair, who stated, “Proposition 19 protects tax savings and other benefits for vulnerable Californians including seniors, disabled homeowners, and wildfire victims.  State and local Democrats should close unfair loopholes, and provide needed housing!”  Alexandra Rooker, former chair of the California Democratic Party said, “Proposition 19 protects seniors and working families…”

Yet, some others do not see it that way. Why?

Jon Coupal, President of the Howard Jarvis Taxpayers Association wrote in a recent editorial: “Proposition 19 is an attempt by Sacramento politicians to raise property taxes by removing two voter-approved taxpayer protections from the State Constitution. This Prop 19 measure would, all too frequently, require reassessment to market value of property transferred from parents to children, and grandparents to grandchildren.”

Sara Kimberlin and Kayla Kitson at CalBudgetCenter.org, the non partisan California Budget & Policy Center that focuses on public policy news and analysis and the effect of these policies on middle class and working California families – are among the unconvinced.  Ms. Kimberlin and Ms. Kitson tell us emphatically, in direct contrast to the statements from Mr. Brulte and Ms. Rooker: “Proposition 19 does little to help California’s housing affordability crisis! It has created a complicated property tax scheme, and reinforces racial inequities in California.”

As one of the most complicated, confusing measures on the November 2020 state ballot, Proposition 19 did genuinely seem to promise large improvements for seniors, homeowners with “severe disabilities” (which is almost impossible to define), the firefighter’s union, and other related parties. A sure sentimental winner when it comes to pulling the heart-strings of Californians.

Yet the closer you looked (which few bothered to do prior to the vote in November 2020) the more significant the changes to California’s residential property tax system you saw… Some helpful to regular middle class homeowners, folks with disabilities, and seniors… Some not so helpful. In the past, you would want to keep parents property taxes through parent to child transfer. As well as locking in a low property tax base while buying out siblings’ inherited property through Proposition 58 and a trust loan. Now it’s through Proposition 19… and there are limitations. and there are l

If you are inheriting CA property taxes from a parent, hoping to keep your parent’s home, that they left to you, as well as keeping their low Proposition 13 tax base – and your attorney is recommending a 3rd party loan to make all this happen, while buying out co-beneficiaries that are looking to sell off their inherited property shares – it would make a lot of sense to call an established trust lender to get advice and possibly a large irrevocable trust loan.  You want to look into California lenders who will lend directly to an irrevocable trust or probate estate. You also want to make sure you understand all about inheriting CA property taxes from a parent, as well as how to transfer parents property taxes when Inheriting property taxes from a parent.  You want to make sure, regardless, what it takes to keep parents property taxes on any property tax transfer, with a parent to child transfer… and parent to child exclusion from having to pay egregious, current property tax rates! 

In actual fact, it looks like Proposition 19 will most likely expand a property tax loophole for older wealthier homeowners, while covering the cost by narrowing the parent to child exclusion, or exemption, for beneficiaries of inherited properties – but, and here’s  the problem, also requiring state and local governments to create new systems capable of tracking how much new property tax revenue is coming in as a result, with a far more sophisticated, robust administrative infrastructure; significantly increasing overhead costs of existing administrative local governments.

They expect Prop 19 will bring in additional hundreds of millions (economists insist it’s nowhere near the billion-plus the California Legislature is anticipating).  And yet this new admin system will call for a great deal more in administrative costs to manage, hire, create software and train staff for this new tax system than anyone is realistically projecting at this point… as well as re-allocating the supposed additional hundreds of millions due to Proposition 19, as a final step. 

VoterGuide.sos.ca.gov tells us Proposition 19 is likely to result in increased state and local revenues – but not for every county. They tell us while most of the new Proposition 19 property tax revenue willhat-does-ca-proposition-19-accomplish be restricted to a new fund limited to supporting fire response, Prop 19 also limits taxes on seniors, “severely disabled” homeowners, and wild fire of forest fire victims.  Tax analysts and assessors refer to these people as “eligible homeowners.”

An eligible homeowner can move within the same county and keep paying the same amount of property taxes if their new home is not more expensive than their existing home. Also, certain counties allow these rules to apply when an eligible homeowner moves to their county from another county.  So, despite the positive benefits, implementing Prop 198 will not be as simple and as easy as it’s supporters  claim it will be.

Does the 1978 Proposition 13 & 1986 Prop 58 still Work for Californians?

Does the 1978 Proposition 13 and 1986 Prop 58 still Work for Californians

Does the 1978 Proposition 13 and 1986 Prop 58 still Work for Californians

History Lesson on Property Tax Relief: Support & Opposition

2020 was an extremely motivated time for pent up anti property tax relief movement in California.  The deceptively entitled “2020 Proposition 13” went to voters on March 3, 2020. This tax hike would have increased California’s overall debt; compelling the state’s school districts to issue more debt, raising property tax bills all across the state. It did not pass, and to put it bluntly, was an utter waste of time and taxpayer’s money.

Unlike Proposition 13 passed by voters in 1978, this 2020 version of Proposition 13 would have doubled the debt caps that currently limit how much bond debt local school districts can acquire. The 2020 Proposition 13 caps on local bond debt would have been increased from 1.25% of assessed property value to 2% for elementary and high school districts, and from 2.5% to 4% for school and community college districts.

The extra property tax revenue from 2020 Prop 13 would have gone into pockets not into roads.  The  2020 Proposition 13 tax hike would have cost taxpayers $740 million per year for 35 years. The cash mainly going to construction-worker unions and contractors that hire everyone, with priority spending going to people working on projects in districts that have signed labor agreements that those in  power prefer.  As we know, the so-called 2020 Proposition 13 failed.

Prop 15 and the Near End of Commercial Property Tax Relief     

Even more dangerous for California, the 2020 Proposition 15 tax hike that was proposed to voters across all 58 counties would have removed the right for commercial property owners to avoid property tax reassessment.  This would have raised property taxes on all commercial and business property owners, which would have raised commercial store rents, office and apt. rentals, rentals on all business tenants would have gone up.  This would in turn have increased prices on all goods and services throughout the state of California.   Considering the outcome on middle class residents and working families, it would not have been a pretty picture.

Supporters of the Proposition 15 campaign raised over $67.6 million mostly from foundations and public service unions. The top three contributors were the Chan Zuckerburg Initiative, California Teachers Association, and SEIU California. Supporters say Prop 15 is a broad coalition of 1600 organizations launched by civil rights organizations, housing groups, parents, teachers, nurses, firefighters and community-based organizations who advocate for equality and justice for communities of color

Opposition to Proposition 15 Campaign has raised over $73.1 million mostly from land developers, agricultural interests and golf and country clubs. The largest donor is the California Business Roundtable Issues PAC that has contributed more than $38 million to the No on 15 Campaign.  The Business Roundtable’s biggest donors are New York-based Blackstone Property Partners who gave $7 million and Michael Hayde, CEO of the Irvine real estate investment firm Western National Group, who gave $4.5 million.

Despite the massive effort towards promoting and passing this tax hike, voters were not sufficiently confused or conned into backing the bill en mass… and they rejected this tax increase on commercial properties, supposedly depriving the California school system of what allegedly could be a significant source of consistent revenue.  Although the true intended recipients of this extra commercial property tax revenue remained under questions… and backers of Proposition 15 – the first major effort to cut into beloved property tax relief afforded by Proposition 13 since it was voted into law in 1978 – finally conceded defeat, and California heaved a statewide sigh of unified relief. 

The question remains – would economic collapse of the statewide   consumer base and working family structure in California have been worth a few extra dollars for the educational system, which is doing relatively well as is?

Last Minute Promotion of Snake Oil Sales to California Voters

Motivated, determined and relentless opponents to property tax relief in California came up with a last minute tax hike measure, Proposition 19 – and the CA Association of Realtors shoved $35 Million at the CA Legislature to promote this unusually deceptive bill, after suffering significant tax hike losses.  They managed to confuse enough voters with disingenuous and deceptive public relations to get Proposition 19 passed – by a hair – and watered down the critical Proposition 58 “parent-to-child exclusion” tax break for middle class beneficiaries and new homeowners. 

This weakened California homeowners’ ability to avoid property tax reassessment without obstacles. So Proposition 19 managed to limit parent to child transfer rights to a one-year window, and only as a primary residence.  No longer could investment properties avoid property tax reassessment.

So the ability to transfer parents property taxes, when inheriting property taxes from a parent, is now on a tighter path. We can still keep parents property taxes but they made it more challenging, in the midst of a Pandemic no less.  Avoiding property tax reassessment and establishing a low property tax base; as well as buying out a sibling’s share of inherited property, meaning the transfer of property between siblings or sibling-to-sibling property transfer – still exists, yet with a few more obstacles to remain aware of. 

We can still transfer parents property taxes in California when  inheriting property and inheriting property taxes from a parent, and remain able to keep parents property taxes on any property tax transfer, such as the parent to child transfer or parent to child exclusion.  It’s just not quite as simple or easy as it was prior to advent of Proposition 19.

Thankfully, enough property tax breaks survived in California to enable property owners to still save significantly on property taxes. Californians can still get a trust loan from a trust lender, working alongside Proposition 58, to buyout a co-beneficiary when inheriting property taxes from a parent – and, most importantly, to establish a low Proposition 13 level property tax base, basically forever for an inherited home, for example from a niche firm like Commercial Loan Corp.  

Most Californians struggling financially from Pandemic shutdowns and health outcomes should research niche blogs like this one, or   info sites like EdSource.org who looks  at both sides of Proposition 15 for example, or SiliconValleyandBeyond.com who examines property taxes and Proposition 19, among other related issues. As well as state government websites such as the  California State Board of Equalization.  The more we know about how to use trust loans and these unique tax breaks, plus other property tax reduction solutions we have access to, the better off we’ll all be going forward.

California Proposition 19 Lenders and Irrevocable Trusts

California Proposition 19 Trust Loans

California Proposition 19 Trust Loans

Post Proposition 19 Californians must face certain  changes to the Proposition 58 “Parent to Child Transfer” tax break, the “Parent to Child Exclusion”. 

Property owning Californians now have to grapple with specific challenges, where property tax relief is concerned. It has to be said that, with all due respect, that the realtor community  in California is straining credibility.  They backed Proposition 19, so anything they propose going forward, concerning property taxes or property tax relief, we can assume is only going to benefit the California realtor community.  Not the buyers, or renters…  or owners.  This is fairly obvious. 

Frequently being the wealthiest of the wealthy, we find it ironic that many realtors in California bleat and moan about one family – the Bridges family in Los Angeles – using the one often repeated example to advance the shaky case that everyone in California benefiting from Proposition 13 and Proposition 58 are fabulously wealthy, are elderly, and are intent on buying up all the multi-million dollar beachfront properties in the state, simply to rent out to other fabulously wealthy people from other states, vacationing in Malibu or Santa Cruz or Santa Barbara, having a grand old time – while the besotted realtor community suffers terribly from the lack of homes available to them to go to market. These claims basically debunk themselves.

Moreover, as the claim goes, all because of Proposition 13… and all those rich movie stars buying up all those luxury properties so they can make a few extra dollars every month, reportedly $10,0000 to $15,000, renting out an inherited investment property, like the Bridges do, or did. Again, Bridges being the only name ever used as an example, repeatedly in articles and editorials. Or are the Bridges the only family ever to be involved in this peculiar practice?

We simply cannot figure out why these rabid critics of property tax relief, practically foaming at the mouth, cannot locate another wealthy show business family to bring up when discussing this supposedly “out of control” practice of renting out inherited beachfront properties to vacationers at fairly egregious prices.

Apparently, according to critics of Prop 13 and Prop 58, it’s all because of the families  taking advantage of the “Parent to Child Exclusion” that the real estate market has shrunk a few percentage points over the past few years.  Utilized only, they tell us, by wealthy elderly homeowners and their offspring. No one else. No middle class families, no veterans, no retired folks living on a fixed income.  

And this argument, involving the Bridges family as the sole example of a family of multi-millionaires using an inherited home as an investment property to make a few extra dollars on the side has literally remained unchanged for going on 35 years now.   A lot of people think something is awry with this picture.  So let us take a quick look at the history behind all of this…

So what does the realtor community all across the state of California do, after putting up with supposed armies of rich elderly homeowners and their grown children, renting out inherited luxury homes on the beach for decades – along with having the nerve to actually reside in their own home for decades, simply to take advantage of Proposition 13 or Prop 58, so they can avoid property tax reassessment and rent out luxury homes to upscale tourists?

Apparently also further enraging the realtor community AND the Legislature by also taking advantage of a certain Proposition 58 transfer of property – these wealthy homeowners also take terrible advantage of the California tax system by using these Prop 58 tax breaks to buyout property shares inherited by co-beneficiaries as a transfer of property between siblings – combined with the transfer of parents’ property taxes when they are in fact inheriting property taxes from a parent.

Actually “having the gall” as many critics of property tax relief would put it in the Los Angeles Times or San Fran Chronicle, to basically save a small fortune on a property tax transfer, by exercising their right to keep parents property taxes rather than pay full freight with full up-to-date market rates – paying “their fair share” without “taking advantage” of Proposition 58’s Parent to Child Transfer, or Parent to Child Exclusion.

Apparently, the Legislature and the realtor community are so hard-up for cash that all the property owners in California should be expected to pay reassessed property tax rates, adding thousands, often tens of thousands to ones’ tax bill… and not take advantage of Proposition 13 & 58. Eventually, the Legislature and their friends at the California Association of Realtors  decided something had to be done about this perpetual injustice!

So the California Association of Realtors and other supporters of  a tax measure they called Proposition 19, in 2020, raised $63.8 million ($58.6 million from CAR) and $4.9 million from the National Association of Realtors.  Opponents raised less than $50,000 to wage a political-social campaign, and finally these critics of property tax breaks took down the dreaded Parent to Child Transfer tax break – protected by the triple-dreaded Proposition 58 tax measure since 1986. They weren’t actually able to completely remove this tax break… However, they came awfully close.

Yet as residential or commercial property owners found out, after all the hysteria died down across the state, and property owners finally realize that they had in fact been bamboozled into voting for this tax measure that was turned out after all to be a hungry tax wolf disguised as a charming sheep who just wanted to help seniors and school children. BUT – they still had plenty of property tax relief options left… they were just a bit more challenging to access. Yet that really would be a political third rail. Especially after voters in California finally saw they had been deceived. 

Therefore, despite all the worrying about this, all these property tax relief options remain intact. If we inherit parents’ property from a trust or an estate we can still take advantage of Proposition 13 & 58 to access a large 6 or 7-figure loan to an irrevocable trust to buyout co-beneficiaries so we can own it solo, and keep parents low tax base… frequently without a credit report, without up-front charges, with low interest, no hidden fees, usually in just a few days, and always with very simple terms – unlike your typical bank or credit union.

As long as we have a Prop 58 friendly trust lender, for example like the Commercial Loan Corp. who can reached at 877-464-1066 so you don’t have to hunt for the number… Plus there are a few Websites besides this blog that explore the often misunderstood process of  taking full advantages of Proposition 58 Parent to Child Transfer, or Prop 193 Grandparent to Grandchild Exemption carefully covering Transfers Between Parent and Child or  Grandparent and Grandchild.

And of course there is the often used research Website, with up to date news and  information on Proposition 13 at the Howard Jarvis Taxpayers Association  or for a formal cutting edge look at updated information exclusively vetted and imparted for California property owners, regarding property tax relief for those impacted by Covid-19, at Andersen.com… Moreover, to take advantage of Proposition 13 & 58 whenever and wherever possible!  There is no point in ignoring any property tax assistance you can receive, one way or the other!