CA 2021: What’s Involved with Transferring Property Taxes from Parent to Child?

Transferring Property Taxes in California on an Inherited Home

California Property Tax New and Information on Transferring Property Taxes

Prop 19 Parent-Child Exclusion From Property Tax Reassessment

We’re going to take a look at 2021 property tax issues from a high-level overview perspective here – simply to provide a firmer grasp on everything involved going forward, now that changes to California property tax relief are active.

Proposition 13  property tax relief was voted into California law on the June 1978 ballot, with 64.79% of the vote, insuring that, going forward, the taxable value of California properties would be based on their assessed value (i.e., “base year value”) rather than their current, or “fair market”,  value.  Proposition 58 followed in 1986, with its’ wildly popular “parent-child exclusion”… trust loans to allow beneficiaries inheriting property to begin keeping a low property tax base when inheriting a home is another outgrowth of the popular statewide California parent-child transfer tax break exclusion from property tax reassessment. If you need assistance with a trust loan or learning more about a parent to child property tax transfer, you can call 877-756-4454 or complete this form for additional information:

Despite the fact that the new Proposition 19  property tax law has for all intensive purposes replaced Proposition 58, Proposition 13 will remain intact, as is, going forward.  Proposition 58, was passed on the Nov 1986 ballot, with 75.7% of the vote in California created an exclusion from property tax reassessment, or property transfers between parents and children, known as the parent-to-child exclusion.

Property tax transfer benefits to transfer parents’ property taxes, inheriting property taxes, are still intact under Proposition 19. The parent-child transfer tax break still allows new property owners,  i.e., beneficiaries inheriting parental property, to keep parents property taxes – thereby avoiding property tax reassessment and maintaining exclusion from property tax reassessment. These tax breaks under Proposition 19 are most helpful to Californians with real estate that has low assessed values due to still robust Proposition 13 property tax relief.

As most of us know, assessed value usually reflects the purchase price plus added cost of alterations and improvements; plus an increase of 2% per year maximum tax rate – except when there is  a change in property ownership.

Because real property in California tends to appreciate at a higher rate than 2% per year, the longer real estate is held onto the greater the difference between its’ assessed value and its’ fair market value, hence the greater the difference between property taxes a homeowner pays  versus what is paid by the owner of a property just  purchased, both properties being of similar value.

Proposition 19 allows a beneficiary inheriting parental primary  property to move into an inherited primary residence right away, inside 12-months, avoiding property tax reassessment… As long as the fair market (i.e., current) value of the new inherited home doesn’t exceed the parent’s assessed value by more than $1,000,000

Qualified Personal Residence Trusts & Irrevocable Trust Loans

Anyone who has transferred California real property to a qualified personal residence trust (QPRT) that has not yet come to an end should seek legal counsel ASAP, since property held in a QPRT is not protected by Prop 19.

Likewise, with respect to irrevocable trusts, if you happen to have siblings and are of the mindset to buyout your sibling co-beneficiaries that are intent on selling off their inherited property shares to an outside buyer – plus you want to keep your parent’s low property tax base, a trust loan solution is surely worth exploring.

Moreover, as you are  inheriting property taxes on an inherited home left by your parent,  an irrevocable trust loan from a reliable trust lender, working in conjunction with Proposition 19, is certain to provide those co-beneficiaries of yours with far more cash than any outside buyer would offer…  So all around, this trust loan process is surely worth serious consideration and an in-depth discussion with your trust or estate attorney.

Properties Held in Legal Instruments and Entities

It’s also worth noting that the parent-to-child exclusion does not apply to properties held in instruments such as LLCs (limited liability companies),  in  legally valid partnerships, or in corporations.  There are different rules and regulations associated with any change in ownership and any subsequent property tax reassessment of real property held in such  entities; possibly without exclusion from property tax reassessment.

Parents that want their heirs or beneficiaries to retain, not sell, property held in a California entity like an LLC, or corporation, or a partnership of some kind, should definitely seek legal advice from an attorney familiar with these type of issues to determine exactly how these separate rules and regulations apply to their specific situation.

Property owners should also speak to an estate or real estate attorney prior to transferring any real property out of or into legal entities like LLCs or corporations; or  before implementing so-called “intra-family” transfers of any legal entities that own California based property.  For several reasons – perhaps the most critical being the possibility of triggering property  tax reassessment by accident!

Transferring Your Assessed Value to a New Primary Residence if You’re 55+, Disabled, or a Victim of a Natural Disaster or Wildfire

If you are over age 55 you now have access to special property tax relief privileges, which is ironic as social bias concerning older Americans usually places seniors in a somewhat inferior, less privileged position;  yet in this case seniors are given greater tax privileges than younger residents, which is a  rather  extraordinary turnaround from the usual “ageist” social and work-place dynamic.

Or, if you are what tax assessors refer to as “severely” disabled; or if you are a  victim of a governor-validated “natural disaster”; or an out-of-control  wildfire, such as California has been experiencing on and off for some time – you can transfer  the assessed value of your primary residence in California to a home you recently purchased, or that was constructed recently as a “replacement residence” in any one of the 58 counties in the great state of California.

Let’s step back for a moment, and take a realistic look at this process from a high-level viewpoint…

These days, the transfer of your property’s  assessed value to a primary replacement residence can take place up to 2-years after the completed sale of your original primary residence; and will remain effective even if your replacement primary residence has a higher current, or fair market, value than your original primary residence.

However, if that is indeed the case, the excess fair market value of your new house will be added to the assessed value of your original house, which will result in the new assessed value of  your new primary residence.  Not only that, speaking of special privileges for those over 55… if you are a homeowner over 55, you  can take full advantage of the assessed value transfer up to three (3) times during  your lifetime.

Additionally,  a “primary residence” under Proposition 19 also applies to family farms.  Lastly, in certain situations, when a grandchild’s parents are both deceased, assessed value can also be legally and validly transferred from grandparent to grandchild, through Proposition 193. 

Inheriting CA Property & the Proposition 19 Parent-Child Exclusion in a Pandemic Economy

Keep a parents low property Tax Base on an Inherited Home

Transfer a Property Tax Base on An Inherited Home

The Need to Transfer Parents CA Property Taxes, Saving Money & Pausing Property Taxes Until a Normal Economy  Returns

Whenever America experiences an economic crisis people look for alternative solutions, and often reach “outside the box” for answers. Some activities outside the box that have been  suggested for working families, that supposedly will help families spend less and save more, are an in-home project called “homesteading”, which is apparently affording some middle class California families a little relief in the midst of a challenging pandemic.  State leaders are concerned, and are trying to achieve positive results with unconventional efforts. 

“Homesteading” has some California residents relying on creative ways to spend less and save more… reuse and get every little bit of use from all household goods. For instance, maximizing scraps of vegetables into family size batches of vegetable soup. “Making more with less” is the message from some state leaders. 

This sort of activity may help some middle class working families, but what is really required right now – as we deal with a pandemic impacted economy and unstable real estate environment, with many people concerned about the possibly of foreclosure – is lower cost of living, since increased revenue is still difficult in many quarters.

Approximately 30% of the companies impacted by shutdowns across the country are still inactive.  With many employees still working at reduced  compensation, from home, although thankfully many have returned to work under normal conditions.  The website  https://www.edd.ca.gov  tells us that the number of Californians employed in April of 2021 was 17,378,100, an increase of 36,800 jobs from March’s total of 17,341,300 and up 1,753,700 employed workers in April of 2020.  The number of unemployed Californians as of April 2021 was 1,576,100. 

The state is working its’ way back up from the severe pandemic unemployment crisis that began a year ago.  However, still severe enough to merit additional cuts in taxes, most notably property taxes as this would be the least problematic tax to pause until Covid has been completely stamped out, with everyone back at work in normal numbers and in normal fashion. 

Minimizing or actually pausing or curtailing certain taxes is something the state government can actually continheriting-ca-property-the-proposition-19-parent-child-exclusion-irol, and implement without dramatically upsetting the economy.  Therefore,  the California government would do much better to minimize property taxes, for example, or put them off completely until the pandemic lifts and normalcy has returned to the work place; rather than proposing ineffective tax deferments, as they have done, that have to be paid within a few months anyway.  

Property taxes are an example of taxation that the government can control, and survive without, for a year or two.  Intentionally pausing residential and commercial property taxes for California property owners would most likely not offset the state government in any material way, and would help many homeowners  in a major way.

However, if actually pausing property taxes is not a realistic hope as the pandemic lingers… then we can at least look to California leaders to better communicate property tax relief tools and solutions to the public.  Californians still have an intact Proposition 13 to look to, and  robust Proposition 19 property tax breaks to utilize, especially for those over 55 – as well as allowing new homeowners,  and  beneficiaries inheriting property, to be able to take advantage of parent-to-child transfer rights; to make use of a  loan  to an irrevocable trust, inheriting property while keeping a low property tax base; to transfer parents CA property taxes upon inheriting property taxes and keep parents property taxes as an outcome of a property tax transfer from dad or mom.  And, naturally, the parent-to-child exclusion from reassessment at “fair-market”, or current, property tax rates. 

State leaders must understand that California residents who are unaware of the power of property tax breaks like the ability to transfer parents CA property taxes should be made more aware of property tax savings obtained from Proposition 13 and Proposition 19 – through press releases, new media, YouTube, high-profile news sites, relevant real estate and personal finance websites, and blogs. For example like CA Assemblyman Kevin Kiley is doing, sponsoring urgent “Amendment 9” to protect property tax relief for working families in all 58 counties.

It is important that beneficiaries inheriting property from parents should also be made aware of trust lenders, and how irrevocable trust loans work with Proposition 19 to lock in a low Proposition 13 property tax base plus help to buyout siblings’ inherited property  shares, with a sibling-to-sibling property transfer.

When the pandemic lifts and the real estate market levels off along with the overall middle class and upper middle class job-based economy (the real economy, not the stock market), we shall see where we are.  However, for now this is perhaps the only way, along with other similar measures, to put more spending cash in Californians’ pockets,  and slowly get the California economy back on track for middle class and  upper middle class property owners, beneficiaries inheriting property from parents, and working families.

Inheriting a Home in California & Trust Loan Property Tax Savings in 2021

Trust Loan Property Tax Savings

Trust Loan Property Tax Savings

2021 Property Tax Relief & Using an Irrevocable Trust Loan for Homeowners and Beneficiaries Inheriting Property in California

As many Californians that are seeking lower property taxes know by now, current property tax relief measures open up new opportunities for you to take advantage of, if a parent is leaving property to you and your siblings – and you’re looking to keep a low property tax base. 

You can now look forward to new property tax relief opportunities, some that are difficult to understand – that allow you to move into inherited property quickly, within 12-months as a principal residence; in order to take full advantage of the Proposition 19 parent-to-child exclusion (from current property tax rates) to avoid property tax reassessment.

What you may not know a great deal about, however, or what may be difficult to understand, are certain highly effective property tax breaks that are now available to you, if you’re a beneficiary inheriting property from a parent – using an irrevocable trust loan, in conjunction with a Proposition 19 parent-child transfer, with the help of a trust lender.  This is frequently taken advantage of by beneficiaries, perhaps like yourself, who intend to keep a home inherited from parents at the original low property tax base – also making it possible to buyout inherited property shares from co-beneficiaries, using an irrevocable trust loan.

Avoiding property reassessment is a property tax relief benefit available to all Californians, as long as all new requirements are followed. So beneficiaries, new homeowners, can  transfer parents property taxes when inheriting property and inheriting property taxes; with the right to keep parents property taxes for as long as they want, as long as they reside in their inherited residence.                        

Hands On Experience, Establishing a Low Property Tax Base

If it were your siblings selling their property shares – you’d be providing them with a good deal more money than an outside buyer would offer, for the same property; plus locking in a low property tax base for yourself – from a trust lender like Commercial Loan Corp.  And, speaking of which, certain benefits are aptly summarized by a client, who said:

“…just closed my first loan (refinance) with Commercial Loan Corp with a very low 30 year fixed rate (honestly a lot less than we ever anticipated)… This firm was very knowledgeable about [using an irrevocable trust loan] process and trust legal issues involved.  We have been trying to get a refinance for this property for over 5 years! So happy that we found a trust lender like this!(1)  

New 2021 Property Tax Relief Advantages in California

Many California residents are not aware of certain new property tax breaks that provide tax relief for homeowners over 55.  Moreover, residents that are considered to be “severely disabled” can now also transfer taxable value from their current house to a new home – as long as the value of the new house is less than or equal to the value of the previous home.

Other improvements for certain segments of the population in California are, surprisingly, not well known throughout the state – most likely due to unintentionally poor communications from folks in state leadership roles;  plus  confusing coverage by the media.  Improvements, for example, as of April 2021 when Proposition 19 gave victims of wildfires and other natural disasters – regardless of age or disabilities – the right to transfer lower taxable value to a new home.

If this pertains to you, it would definitely be worthwhile to investigate, and discuss with well known property tax relief  experts such as, for example, attorney Rachelle Lee-Warner, Esq., a senior partner at estate, trust and tax planning law firm Cunningham Legal in Oakland Hills, CA with many other offices throughout California, specializing in Trust Administration; or Michael Wyatt Consulting in Corona,CA, specializing in real estate transactions, using an irrevocable trust loan, and property tax relief in general.  Or any firm with similar focus and equivalent experience.  

Having a seasoned specialist  like that to help guide you through some of the new advantages Proposition 19 offers  ends up saving you a lot of money on property taxes, if you meet the requirements.

For example, if you’re a  homeowner over 55 or are “severely disabled”, you won’t be limited to buying a new house and transferring your lower tax base only within the same county that your previous home was situated in. Now, you can  relocate to any of the 58 counties in California and still retain your previous, low property tax rate.  

CA Property Tax Relief Improvements Reported in the Media

ABC-10 News, in addressing property tax relief changes, confirms that: “…this law benefits seniors, the disabled, and victims of wildfires and disasters. California property owners are paying the same taxes based on the price they originally paid after California enacted a law to keep property taxes down in 1978. Proposition 19 lets people keep their tax base when they move anywhere in California up to three times and only pay higher property taxes on the difference. This would allow wildfire victims to move anywhere in the state without facing massive tax hikes.”  (2)

Interviewed on KPBS News, Jordan Marks, a taxpayer advocate for the San Diego County Assessor’s Office also offers his opinions.  Mr. Marks tells us: “Seniors are gonna get the benefit to transfer their replacement property. So they sell their primary home and they can get a second one, and they can do it three times now versus the one time allowed under the former tax law.” (3)

Members of the state Board of Equalization are eager to address the type of confusion we mentioned earlier, that is often associated with the Proposition 19 tax law.  Mr. Gary Gartner at the CA Board of Equalization tells us: “We have a lot of constituents calling in expressing [mixed] opinions of the new law. The board is trying to work out ambiguities in the law with assessors around the state and legislators in Sacramento. To that end, the board is holding virtual town hall meetings just to give people the opportunity to better understand the complexity of this law, which is really challenging…” (4)

The value of any new house can be larger than the value of a previous home – although the increase in value naturally has to be added to the previous home’s transferred assessed value. If this seems confusing, you can always enlist help from a property tax consultant or trust lender.

Trust Loans & Estate Lending in Concert With New Property Tax Breaks

Beneficiaries that are selling their inherited property shares actually receive more money through a trust loan than if they were to sell their inherited property to an outside buyer – by avoiding realtor fees and other costs,  each of those co-beneficiaries receives, on average, an extra $15,000+. While the heir or beneficiaries retaining the family house get to save $6,200 on average per year in property taxes. This savings adds up. (5)

It may sound complicated, but when you speak to  a trust lender or  property tax consultant, the details become clearer after you apply your own specs in discussion with a property tax specialist.  To discuss a home you may be inheriting, as well as property tax savings – Call attorney Rachelle Lee-Warner, Esq. at Cunningham Legal, Michael Wyatt Consulting, the Trust Lender Commercial Loan Corp, or the Property Tax News at (877) 756-4454.

 

Intra-family Loans to Purchase Real Property vs Intra-Family Trusts & Trust Loans

Family Trust Loans

Family Trust Loans

Intra-family loans, to purchase a home or other big ticket items, are sometimes confused with intra-family trusts involved with  buying out a sibling inheriting property, or several beneficiaries who have inherited property from parents yet wish to sell off their property shares to an outside buyer, keeping a low property tax base or a loan to an irrevocable trust that is also associated with exclusion from property reassessment.  

Components of these processes have been discussed on a number of high-end websites at length, such as National Review who informs us in no uncertain terms, that:

“… many clients use intra-family loans to assist a relative with the purchase of a residence, the funding of a business venture or an investment in any other asset. If properly structured, intra-family loans also provide clients with an excellent tax planning strategy. To avoid having any part of an intra-family loan considered a gift for tax purposes, a client should follow specific guidelines, including charging a minimum interest rate, documenting the loan, and requiring payment under the loan terms…”

As well as the ever popular economic bible for serious students of finance, Kiplinger – where they tell us: “Intra-family loans typically use the AFR (Applicable Federal Rate), the lowest interest rate that can be charged on a loan for it not to be considered a gift. The IRS has three rate tiers for the three different “terms” of loans: a short-term loan (0-3 years), a mid-term loan (3-9 years) and a long-term loan (9 years or more).”

If you apply some serious thought to it, you’re bound to come to the conclusion that it makes very little senses to involve the  government in family loan matters.  In fact, it’s not logical to involve the government in any personal matters – financial or otherwise. 

Let’s say you borrow $250,000 from your wealthy Dad – and you pay it back whenever  you pay it back, usually at zero interest, if this even remotely resembles a close family.  If your Dad is going as far as to actually charge you interest it is no ones’ business but your own, between the two of you, as to what the interest might be, or if there even is interest at all, which generally there is not when it concerns internal family lending.   

Although the concept of involving the government in family relationships and intra-family lending is counter intuitive, California intra-family trusts, irrevocable trust loans and exclusion from property reassessment are processes that are unlike any other tax relief or financing anywhere else in the United States – and are extremely useful to both trust lenders and beneficiaries inheriting property from family members, with respect to establishing a low property tax base, as well as buying out co-beneficiaries’ inherited property shares. 

This process moves into some interesting yet often challenging areas when used to resolve inherited beneficiary property disputes and conflicts – typically over retaining versus selling property inherited from parents.… Along with enabling new homeowners and beneficiaries inheriting property to take advantage of  tax breaks under Proposition 19, parent-to-child property tax transfer on an inherited home; and the parent-to-child exclusion from property reassessment on every parental property tax transfer and transfer of property between siblings through trust loan funding; as well as Proposition 19 transfer of property and Proposition 13 to avoid property tax reassessment  when inheriting property taxes, always with the ability to keep your parents’ low tax base for trust beneficiaries,  basically forever. 

Therefore, if you reside in California and are inheriting a home and/or land from a parent who has recently passed – and you prefer to keep your parent’s low  tax rate in addition to claiming an exclusion from property reassessment, along with buying out siblings who insist on selling to an outside buyer – you can always go to a reliable trust lender to accomplish all of the above. 

Moreover, this ensures the siblings you are in conflict with, who are intent on selling out their inherited property shares, that they will  receive a good deal more cash in the transaction that any outside buyer would give them for their property shares… ending as a win-win transaction for all parties concerned.

However, let’s be clear about one thing – it is an intra-family trust that you will be transacting – not an intra-family loan.

What is the Role of CPAs in Helping Residents With Prop 19 Establish a Low Property Tax Base

Inheriting Property Taxes in California

Inheriting Property Taxes in California

Inheriting Property Taxes in California From a CPA’s Expert Point of View

Many accountants and property tax consultants these days have reinvented themselves to some degree and have become Proposition 19, 2021 revised property tax relief experts for middle class families and beneficiaries inheriting real property, and for new homeowners in both the middle and upper middle class California income brackets. 

One such noted CA property tax relief expert and CPA, Komal Kabra from Chugh.net, has a lot of interesting things to say, from her focused CPA perspective on property taxes and property tax relief in California.  She tells us:  “Property tax law  protected by Proposition 13 levies property taxes based on a home’s original purchase price, even as the home’s value appreciates over time. Additionally, the law caps property tax at 1% of sale price, with a maximum 2% increase per year.” 

Under  new Proposition 19 property tax regulations, the number of times the tax rate can be transferred to a new home is now three times, versus once under previous tax law… if you are age 55 or older.  Value of the new home compared to the previous home can be any value; and the location of any new home can be anywhere in California. 

Admittedly, this is an excellent improvement offered by Proposition 19, however it is clear that the age issue must be seriously revisited  in the near future, and opened up to embrace younger age groups.  Although it is an interesting turnabout of American age bias, which is typically going the other way around, with bias against folks in the 50 to 60 age group and older. 

CPA Kabra goes on to say:  “Proposition 19, which delivers property tax savings to eligible property owners, including residents who are age 55 or older; Folks that suffer from severe disabilities and people who have lost their house in a wildfire or officially validated natural disaster, such as a dramatic flood or extreme earthquake.” 

Proposition 19 preserves all of these new property tax breaks, while also enabling eligible middle class and upper middle class property owners in California to transfer their lower “base year” property tax rate to a new home of any value, anywhere in the state,  up to three times – affecting homes purchased on or after April 1st of 2021.

Miss Kabra concludes, with a real-world example: “If an eligible homeowner purchases a home of a greater value than their previous home now, under Proposition 19, they will pay a blended tax rate. For example –  let’s take a middle class couple in their 60s, who own  a home worth $600,000 in Los Angeles, which they purchased in 1972 for $200,000.  Let’s say they sell their L.A. home, and purchase a new home for $700,000 in San Diego.  The first $600,000 of the new San Diego home will be taxed based on their original 1972 purchase price of $200,000.  Only the next $100,000 will be taxed based on current or “fair market” value…” 

Saving Money on Property Taxes With Help From the Experts!

There are other challenging property tax issues, as well as critical property tax relief advantages and property tax breaks, for middle class and upper middle class families to address, with which to avoid property tax reassessment, when inheriting property taxes in California…

New property tax relief advantages include the right to transfer parents property taxes and then keep parents property taxes when inheriting property and inheriting property taxes in California, associated with any standard property tax transfer; leading up to and through the parent-child transfer and parent-to-child exclusion (from carrying a “fair market”, or current, property tax burden).  Leading towards Keeping Your Parent’s Low Property Tax Base When Inheriting a Home; or inheriting a new primary residence that requires a transfer of a parent’s low property tax base. 

If done properly with a trust loan from a trust lender a low property tax base can remain in place for decades, when inheriting property taxes in California, saving residential or commercial property owners hundreds of thousands of dollars in the long run.

All the more reason for you to call a property tax consultant or a trust lender experienced in Parent To Child Property Tax Transfer On An Inherited Home as well as the use of irrevocable trust loans and Proposition 19, as well as Proposition 13, to keep your parent’s low property tax base – if you are inheriting a home, or expect to inherit a home at a low property tax rate; and plan to transfer a low property tax base to a new home down the road. 

Or, if you wish to buyout existing co-beneficiaries that are looking to sell their inherited  property shares, while you are set on keeping that same inherited property in the family – plus keeping the same low property tax base your parents enjoyed.  All of these important family issues are well worth careful consideration.

To learn more about your options when inheriting a house from parents – transferring their principle residence’s low property tax base to your new primary residence – call our main line to ask to  speak with a Trust Fund Loan or Property Tax Savings specialist at Property Tax News, the Michael Wyatt Consulting firm, or the Commercial Loan Corp, at (877) 756-4454 

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.

Proposition 19 Impact on CA Homeowners

Proposition 19 Impact on Property Taxes in California

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 parent before Feb 16, 2021, or based on deeds filed after 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.

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.

 

Assembly Member Kiley Introduces Constitutional Amendment 9 to Block CA Property Tax Hikes

Reinstate Propositions 58 Property Tax Transfer In California

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.

A decade later, voters approved Proposition 193 to apply the same exclusion as the parent-child exclusion, except it covered property transfers between grandparents and grandchildren – as long as the children’s parents were deceased.  California Proposition 193 grants the same rights to a grandchild as Proposition 58 grants to a child.

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.

Jon Coupal, president of the Howard Jarvis Taxpayers’ Association, summed up this proposed tax measure in the Daily Breeze on May 9, 2021 in clear fashion, when he said:

…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.

We couldn’t have said it any better ourselves.