California Proposition 13

California Proposition 13 is also known as “The People’s Initiative to Limit Property Taxation”.  Prop 13 is an amendment to the Constitution of California that became law in 1978. When voters in California passed Proposition 13, the maximum amount of tax on real estate no longer could exceed 1% of the total cash value of your home, or additional real property you owned.  Moreover, Prop 13 limited yearly increases of assessed value of real estate to an inflation factor not to exceed 2% per year.

Another component of Proposition 13 transfer of property is that it prohibits reassessment of new base year value, except when there is a change in ownership of real property, or new construction. This permits homeowners in California to refinance a mortgage without being concerned that their home, or real  property, will be reassessed for market value. This is often of particular concern to elderly homeowners, who frequently reside in the same home for decades; and therefore have many opportunities to re-mortgage, with a long-term payment schedule in place.

In 1986 California voters passed Proposition 58, which, in a sense, works in concert with the limits that Proposition 13 places on your home’s tax base.  In other words, Proposition 58 excludes transfers of real property, between parents and children, from current market value tax reassessment. Prop 58 allows property to be transferred from parent to child, or vice versa, with the use of a Trust.  For example, this enables an adult child to inherit a home from a parent, and keep the parents’ low Proposition 13 tax base. The ability to do this  frequently saves beneficiaries receiving property from parents literally thousands of dollars per year, and in many cases tens of thousands of dollars, in property taxes.

There are some restrictions when it comes to proposition 58.  Properties held in a Trust must meet certain requirements in order to qualify.  For instance, one  requirement states that no funds from an acquiring beneficiary can be placed in the Trust.  In that particular circumstance, a loan is often received from a third party, and placed in the Trust. You can learn more about third party loans for California Proposition 58 qualification here.

There have been some discussions in the media, and among the political class, in California, about repealing both Proposition 13 and Proposition 58.  However, as you can imagine, both Propositions have a great deal of support among California homeowners.

In fact, 42 years after California Proposition 13 went into law, it still enjoys popular support among most California homeowners.  It’s interesting to note that a survey by the Public Policy Institute of California revealed that 57% of  adults polled support the measure.  However,  58% would prefer to allow  homeowners keep Prop. 13’s tax relief and property protections (particularly for seniors) while imposing higher property taxes on business owners.  33% of those polled oppose that sort of taxation on business owners in California.

What do you think? Let us know… We’ll be publishing the results of this survey, so your participation is valuable, and greatly appreciated!  (Your name and contact info will of course remain confidential and private, and will never be shared with any third party entities)…