FAQ: Property Tax Transfers & Taxes on Inherited Homes

Trust Loan Question and Answers

Trust Loan Question and Answers

California Proposition 19 Trust Loan Questions and Answers

If you are staying abreast of updates and news, concerning property tax relief in California, you are most likely aware that there is still some confusion among homeowners as far as where Proposition 58 leaves off and Proposition 19 picks up… with respect to tax breaks like the parent-child exclusion, low tax base issues, and all property tax benefits associated with property inherited from a parent.

We will attempt to dispel some of that homeowner confusion here today through  some well worn questions and answers among beneficiaries, estate & tax attorneys, property tax consultants and trust lenders in California.

Q: If we forgot to apply for the parent-to-child exclusion before Feb 16, 2021, can we still qualify for this exclusion anytime thereafter in 2021 to avoid property tax reassessment through Proposition 58 and Prop 193 for the grandparent-grandchild exclusion?

A: As long as the change in ownership of your property from your parent took place on or before Feb 15, 2021, the transfer will qualify for the exclusion under Proposition 58/193. The date of death is the same as the date of the change in ownership. However, bear in mind that your claim has to be filed with your County Assessor within 3 years of the date of transfer (or prior to transfer to a third party) or within six months of the date of notice of “supplemental” or “escape assessment”. So no, your actual claim did not have to be filed by Feb 16, 2021.

Q: Regarding Proposition 19, if I inherit my parent’s family home and move into it as a primary residence, do I have to reside in that house to take advantage of the parent-to-child exclusion? Can I move somewhere else?

A: Apparently at least one beneficiary has to reside full time in that family home in order to avoid property tax reassessment with the parent-child exclusion. Once that property is no longer your full time home it will be reassessed at current market rates.

Q: Property transfers were executed under Prop 58 prior to Prop 19 becoming law on Feb 16, 2021. Is it true that Proposition 58 can also apply to property transfers after Feb 15, 2021?

A: No, it is Proposition 19 that will apply to property transfers after Feb 16, 2021.

Q: How does Proposition 19 affect my inherited property that’s being held in an irrevocable trust?

A: First of all, the trust governs the property. For a home held in trust, tax law states that a change in ownership occurs when real property goes to anyone other than the trustor or the trustor’s spouse or “domestic partner” when a revocable trust becomes irrevocable, and cannot be revised. The date of the decedent’s passing is viewed as the date of change in ownership. Proposition 19 states that Prop 58 applies to transfers that were executed before Feb 15, 2021. Proposition 19 applies to transfers that occur after Feb 16, 2021.

Q: If a family home is given to three sibling beneficiaries as a gift, must all three siblings reside in this home as a primary residence in order to take advantage of the Prop 19 parent-to-child exclusion?

A: As long as at least one sibling inheriting this property continues to live in the home as a primary residence, or principal residence, the exclusion will remain active for that property, and that beneficiary.

Q: Does Proposition 19 apply to a property transfer of a rental home, as Proposition 58 did?

A: No, under Proposition 19 the parent-child exclusion from reassessment applies only to the transfer of a family home that remains the principal residence of the beneficiary that moved in and continues to live there.

Q: If the value of my inherited home is more than $1,000,000 exactly what are Proposition 19 rules and regulations concerning the parent-to-child exclusion?

A: Under Prop 19 it is the sum of the factored base year value plus $1,000,000. Should the assessed value exceed this limit, you can benefit from partial property tax reassessment, or partial property tax relief. The amount greater than the excluded amount would be added to the factored base year value.

Q: If my county Tax Assessor doesn’t know about the passing of my Dad before Feb 16, 2021, and becomes aware of his death 15 months later and so reassesses the property I inherited from my Dad on the date of my Dad’s passing… Is a parent-to-child transfer or  parent-to-child exclusion applied through Proposition 58 or Prop 19?

A: The law in effect today tells us that the date of death will apply. It has been made clear that Prop 58 applies to an inherited property transfer from a parent on or before Feb 15, 2021.  It’s important to remember that California Proposition 19 applies only to property transfers that go through after Feb 16, 2021.

Q: Now that Prop 58 parent-child exclusion has morphed into Prop 19 property tax breaks, how do I apply for the homeowners’ exemption or disabled veterans’ exemption within 12 months of the transfer to qualify for a parent-to-child exclusion and grandparent-to-grandchild property transfer exemption from fair market property tax rates, as dictated by Prop 19? Who can help me apply for homeowners’ exemption or or disabled veterans’ exemption in my county?

A: To keep it simple, a claim will have to be filed with your County Tax Assessor, who will be on the BOE list of all California Tax Assessors;  and who will inform you as to what forms to complete, to apply for the homeowners exemption or disabled veterans exemption.

New Rules For Property Tax Transfers In California

Rules for California Property Tax Transfer

The new rules for California Property Tax Transfer in 2021

To Transfer Property Taxes: New Rules & Regulations 

When Proposition 19 was voted into law in Nov 2020, taking affect in Feb of 2021 – a learning curve was suddenly in effect for new homeowners and beneficiaries inheriting property from parents. It became essential, especially for middle class and upper middle class families, to quickly learn about changes to tax relief laws that would impact both existing trusts and inherited real estate.

For example, a “qualified personal residence trust” (QPRT), which is a trust that is established with the intent of allowing parents to continue to live in a house; and once that period of time has ended the balance of the interest is transferred to beneficiaries.

Put simply, a QPRT is a special kind of irrevocable trust that allows the person who created it to remove a primary residence from his, or her, estate so gift taxes can be reduced when transferring assets to a beneficiary.

Buying Out Sibling Property Shares While Keeping Your Inherited Home at a Low Proposition 13 Tax Base

As many Californians know, a loan to an irrevocable trust can also be used to buyout siblings’ property shares, inherited from a parent… while allowing beneficiaries who wish to retain that property, to transfer property taxes and keep that home at their parents’ low Proposition 13 protected tax base. It’s essentially a home equity loan on inherited property, made to the trust.

What a lot of people don’t know is the fact that the trustee and beneficiaries who are intent on keeping their inherited property will frequently borrow money to have their trust funded by a qualified trust lender licensed in the state of California so that an equal distribution of the trust can be made in order to meet California Proposition 19 Board of Equalization requirements.

Typically, beneficiaries enlist funding from a trust lender when a trust does not have sufficient cash to make an equal distribution to all the beneficiaries who are looking to sell their inherited property. Hence, the ability to transfer property taxes, mainly to transfer parents’ property taxes; and avoid property tax reassessment of an inherited home. Usually a savings of over $6,200 per year in property taxes. 

Avoiding ‘Fair Market Rates’ with Proposition 19 Trust Loan Exclusion from Property Reassessment

Changes to California property tax relief in 2021 are a challenge to  understand.  Trusts, Californians have discovered, are now used for more purposes than merely deferring property taxes for a few months. Californians have also discovered that they can avoid being reassessed at fair market rates by moving into inherited property as their principle residence  – bearing in mind a $1,000,000 cap on an exclusion from existing property tax rates.

The benefits of making a lifetime transfer of inherited property has to be compared to a transfer at the passing of a parent, which may cause you, as an heir, to inherit a “stepped-up basis” in transferred property. In other words, when you inherit assets that increased in value from when your deceased parent owned it, the asset’s “basis” is increased to the property’s current or “fair market” value on the date of the parent’s passing.  Unless you take steps to avoid this increase, to be able to transfer property taxes successfully, and avoid property tax reassessment altogether!

Saving Money on Property Taxes With Help From Experts!

When purchasing a new home or inheriting your parents’ residence
it makes sense to call a specialist experienced in the use of irrevocable trust loans to maintain your parent’s low property tax base, for example like the Michael Wyatt Consulting firm out in Corona, CA.  If you are inheriting a home, or expect to inherit a home and plan to transfer the low property tax base to a new home down the road, through an irrevocable trust loan in conjunction with Proposition 19, or Prop 58.

If you’re inheriting a home from a parent and wish to avoid property tax reassessment you still have all the tools to do so, as long as all new requirements are met.  If you’re a beneficiary, a brand new homeowners, you can  transfer parents property taxes when inheriting property and thus inheriting property taxes; with the ability  to keep parents low property tax base, as long as you live in your inherited home. 

Michael Wyatt, an Expert on CA Tax Savings for Homeowners Shares His Viewpoint on  Keeping a Low Property Tax Base

As Michael Wyatt of Michael Wyatt Consulting, tells us: 

When it comes to keeping a low property tax base, with Prop 58 [or now Prop 19] and a trust loan, I always bring my clients to Commercial Loan Corp.  Their loans to trusts give my clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America.  They’re self funded, and that’s why they can extend easier terms to clients…

When your parents die, and your trust agreement says ‘equal shares’  –  That means equal shares!  People basically just get the overall concept of getting money from a trust loan even if it doesn’t sell. It makes more sense all around to get a trust loan; and everyone gets more money.

Regarding the ever-present issue concerning families deciding to either sell inherited property; Or opting to keep property inherited from their parents – Mr. Wyatt  weighs in, telling us: 

More heirs and beneficiaries end up not wanting to sell their inherited property. And  if they did want to sell, a lot of people can be easily convinced, with more cash from a trust loan and trust lender than an outside buyer would come up with, ‘equalizing’ things for them…

You have to look at it this way: there are always  one or two, minimum, who  insist on selling their shares in an inherited property. And there is our initial client contact, with those who want to sell.  And that is where these family estate or trust conflicts begin.  If they sell their property, capital gains tax always hits them. That’s where a trust loan comes in, to avoid that.

A trust lender like Commercial Loan Corp, that doesn’t charge any fees up-front, that’s another great benefit.  Plus, they don’t charge 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 the borrower has to pay back the mortgage in full before the borrower can transfer the property to anyone. 

Going with a firm like that – all costs are offset, unless you plan to keep a property for 2, 3 years or less. Then it doesn’t make sense. But generally you’re looking at keeping that property for seven or more years, as a rule...”

To learn more about your options when inheriting a home from parents – transferring a low property tax base to your new primary residence – contact Michael Wyatt  Consulting, or the Commercial Loan Corp, at (877) 756-4454 to speak with a Trust Loan or Property Tax Savings specialist. Chances are the end result will be a much lower property tax bill.

For more information on California Property Tax News, visit the PropertyTaxNews.org website for all of the latest information and updates. 

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.

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.

Unexpected Limitations Imposed on the CA Parent-to-Child Exclusion From Current Property Tax Rates

The California Parent-to-Child Exclusion for Property Tax reassessment

Keep a parents property tax rate on a home you inherit.

Parent-to-Child Transfer to Avoid Property Tax Reassessment

The ability to avoid property tax reassessment in California through Proposition 13 and Proposition 58 or Proposition 19 is not available only to families that own shopping centers, office buildings or apartments – it’s there for every middle class beneficiary and working family inheriting property from parents – to take full advantage of.  Despite limitations now imposed on some of these property tax relief measures, as of 2021.  It is still there to utilize, and unlike most tax loopholes and tax breaks, it’s not just for the wealthy.

Californians have relied on the Prop 58 parent-to-child transfer and Proposition 193 (grandparent-grandchild exclusion) to transfer California real property to children and grandchildren without property tax reassessment.  Until February 16, 2021, parents could transfer ownership of a principal residence of any value and up to $1 million of assessed value (per parent) of non-principal residence property (vacation and rental homes, commercial property, etc.) to one or more children or one or more irrevocable trusts exclusively for one or more children without property tax reassessment.

Admittedly, Proposition 19 changed those rules. Starting February 16, 2021, the ability for a parent to transfer to heirs up to $1,000,000 in assessed value of a home or real property of any kind that is NOT being used as a primary residence – is no longer possible in most cases.

Previous ability for a beneficiary or heir to avoid property tax reassessment of inherited property that is not being used as a primary residence by the parent, i.e., the decedent, or by the beneficiary or heir inheriting the property – no longer exists; unless things change.  In other words – inherited real estate being used as investment property, and rented out to vacationers, is no longer possible.

However, the process of inheriting property while keeping a low property tax base with the use of a trust loan from a trust lender, while buying out a sibling’s inherited property shares is still very much alive and well in California.  You simple  need to know how to take advantage of the system properly.

So to reiterate, the transfer of a non-primary residence now must be reassessed at what attorneys call “fair market value”, simply meaning current high property tax rates… Except when beneficiaries are using the residence as a primary or principal residence; and the current property tax rate of the residence at the time of transfer does not exceed the parent or decedent’s so-called “assessed value” by more than $1,000,000.  

Assembly Constitutional Amendment 9: Efforts to Reinstate Prop 19

If the inherited residence exceeds the assessed value by more than $1,000,000 the inherited property’s assessed value will be assessed at current market rates – minus $1,000,000.  And these changes are what Jon Coupal at the Howard Jarvis Taxpayer’s Association and political friends of theirs are trying to walk back or permanently stall with their Assembly Constitutional Amendment 9 (i.e., ACA 9), introduced by the young CA Assemblyman, Mr. Kevin Kiley.

 

 

Inheriting Property While Keeping a Low Property Tax Base

Keeping a Parents Low Property Tax Base

How tp Keep a Parents Low Property Tax Base on an Inherited Home

2020–2021 Slowest Growth Rate in California’s History, While Real Estate Values Soar

As average sale prices of single-family homes in California approaches $800,000 the state’s population fell by more than 182,000 people, to less than 39.5 million people in 2020; signaling the first year America’s most populated state experienced such a slow growth rate, abc7.com tells us. As experts and analysts continue to debate the reasons why… 

Economic Conditions in California Call for Property Tax Relief, Not Tax Hikes

In May, 2021 Adam Beam from ABCnews.go.com & Associated Press told us, “In recent years, more people have left California for other states than have moved there, a trend Republicans say is a result of the state’s high taxes and over-prices real estate. The average sale price of a single-family home in California hit a record $758,990 in March, a 23.9% increase from a year ago.” (2)

Ben Christopher at CalMatters.com declared on May 7, 2021 that “The number of Californians declined in 2020 for the first year since at least 1900. The COVID-19 pandemic has done what more than a century of past plagues, recessions, crime waves, droughts and earthquakes couldn’t. It shrank California’s population.” 

“The numbers don’t lie. People are leaving our state because it’s not affordable to live here…” tweeted Mr. Kevin Faulconer, former mayor of San Diego. Without knowing it, they are all correct. 

Property Tax Specialists in California Are Trying to Make a Difference – to Help Residents

To help middle class families that have been impacted by these problems, several financial services companies have been focusing on lowering property taxes for new homeowners and beneficiaries of trusts and estates – such as Michael Wyatt Consulting in Corona and the leaders of the trust lending industry, Commercial Loan Corporation in Newport Beach, who is offering a free consultation to residents on transferring parents property taxes to keep a low property tax base on an inherited home.

Trust lenders help families get approved to work with tax measure Proposition 58 and 19. They originate loans to estates and irrevocable trusts; allowing beneficiaries who are inheriting real estate and liquid assets to buyout inherited real property from co-beneficiaries; equalizing distribution of funds to beneficiaries who are selling.

Working With CA Proposition 58

CA Proposition 58 was approved by voters on Nov. 6, 1986, as a constitutional amendment; excluding from reassessment transfers of real property between parents and their children, typically  transferring parents property taxes – providing a loan directly to a trust, thereby avoiding any risk of triggering property tax reassessment. Loan proceeds are then used to pay off beneficiaries who are selling their real estate assets in line with a parent-child transfer, or “parent-child exclusion”.

Oddly enough, funding through a trust helps co-beneficiaries receive more cash than they are likely to receive from a buyer directly. The title of the property can then be transferred from the name of the trust into the name of the beneficiary who is retaining inherited property.

Utilizing Prop 58, Prop 19 & Trust Loans to Resolve Cash Flow and Family Property Conflicts

Property tax relief oriented firms in California are now working more closely with families inheriting property, alongside their attorney, or family accountant – assisting co-beneficiaries to avoid property tax reassessment at current market rates.  Beside sibling to sibling property transfer, families these days need to get as familiar as possible with their right to be transferring parents property taxes when inheriting a home and while subsequently inheriting property taxes.  Middle class families’ ability to keep parents property taxes and the property tax transfer process in general should be second nature to all middle class families. 

Frankly, all working families and beneficiaries in California should take full advantage of a free consultation from a trust lender like Commercial Loan Corp, in terms of transferring parents property taxes to save money on property taxes; plus resolving sibling conflicts over keeping or selling inherited property, with respect to how much a family can expect to save on property taxes, this year and every year thereafter!  Families can look at saving $6,000 and up every year in property taxes.

A loan to an irrevocable trust allows beneficiaries to keep an inherited home with their parent’s low Prop 13 tax base, while beneficiaries who prefer to sell receive an equal portion of cash, in fact a good deal more than an outside buyer would typically offer.

It’s also important to note that a good trust lender will help beneficiaries learn exactly how to take advantage of Proposition 19 or Proposition 58 to avoid property tax reassessment.  And by avoiding expensive realtor fees, beneficiaries on average receive an additional $15,000; and those keeping inherited property save an average of $6,200 per year in property taxes. 

CA Property Tax Specialists Clarify Their Process

Tanis Alonso, account manager at Commercial Loan Corp, discussed trust loan solutions in a 2021 interview with this blog – with respect to selling an inherited home versus keeping it. She told us:

We don’t view each trust loan as simply a ‘financial transaction.’ Nor do we see the home they’ve lived in for decades as just a ‘piece of real estate’. To us, this a ‘piece of family history’ in the making. And the process a ‘family decision,’ not a ‘transaction’. We see our clients as real families we’re assisting, financially and emotionally, not just as clients signing a contract for a trust loan. We enjoy helping people… getting them money when they really need it – saving them on the cost side in the bargain, with a trust loan.

Ms. Alonso also elaborates on the firm’s process: Besides lowering property taxes the key issue for families is selling as opposed to keeping inherited property. By someone keeping the family property, everyone receives more money than if they were to sell the property to an outside buyer. Because with a loan to a trust there is the upside of less expense. We’re talking about much less expense than would normally be involved in a house sale. Again, a process compensating beneficiaries through a trust loan, instead of a house sale or coming up with the cash yourself… versus a formal house sale through a realtor that would cost ten times the amount to process the entire scenario, a house sale, with realtor commission and fees, taxes, ancillary costs, etc…

Trust Lenders and the CA Parent-Child Exclusion 

Property tax consultant Michael Wyatt formed Michael Wyatt Consulting 25 years ago to help advisors and their clients avoid inadvertent tax consequences, to achieve success and achieve their goals. Mr. Wyatt told us in a recent interview:

By and large, trust lender terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America if they are self funded, which few are. They can extend easier terms to clients. Commercial Loan Corp is one of the few self-funded trust lenders with parent-child exclusion expertise, which is why I deal only with them, when my clients need a large loan to buyout property form siblings, and establish a low property tax base going forward.

Compliance for commercial and residential property owners is far less strict with them, due to their being self funded. They don’t charge any fees up-front, another great benefit. Plus, they don’t require paying loan interest in advance. Most trust lenders do.

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” during property transfer, stating that the borrower has to pay back the mortgage in full before transferring property to another person. It’s fast, 5 to 7 days; and all costs are offset. It makes more sense for new homeowners, and beneficiaries, to take this trust loan approach … when inheriting property from parents.” 

We couldn’t have expressed it more clearly ourselves!

If you need assistance with a trust loan or questioned answered regarding if you might be able to keep a parents low property tax base on an inherited home, we recommend you contact either Michael Wyatt at (951) 264-6152 or Commercial Loan Corporation at 877-756-4454.

What CA Beneficiaries, Trustees & Homeowners Need to Know

New California Prop 19 Property Tax Transfer

New California Prop 19 Property Tax Transfer

Tax Basis Portability

As of Feb. 2021, so-called “tax basis portability” has been available to beneficiaries and homeowners, under the new Proposition 58 quasi-replacement, CA Proposition 19.  Tax basis portability is a way to reduce the assessed value of your home.  As a result, you have the generally significant benefit of lower property tax liability.

With “tax basis portability”, you can transfer the old assessed value of your previous home, to your next home. For instance, if you own  a house with an assessed value of, say, $400,000. You sell it for $600,000, and purchase a house for, let’s say, $550,000.  So rather than a new reassessed value of $550,000, you can apply to reverse  the value of the property back to the previous assessed value of $400,000. Therefore, the lower value can shave roughly $1,800 off your property taxes every year.  OK, it’s not a million dollars, but it adds up…

As long as you can verify that you are –

  1. age 55 or older;
  2. or severely disabled;
  3. or own a home that has been significantly damaged by forest-fire or wildfire, or a natural disaster, such as a flood.or severely disabled;
  4. plus, are inheriting a home that was a principle residence; and are moving into the property only as a principle residence.

“Portability” is language used to define estate tax law that enables a surviving spouse to use an estate tax exemption left by a deceased spouse to protect valuable assets during the surviving spouse’s life, or at the surviving spouse’s death.

Potential Issues with a Replacement Property

A “replacement property” can be purchased prior to the sale of home you are currently living in. Of course there may be some problems property tax relief critics, realtors, politicians, and the Legislature doesn’t like to acknowledge – such as the size of an inherited home, your family may be way too large for it.  Or the inherited home may be in an undesirable area. 

If you have children in school, the school in the new school district you may find yourself in might be completely  inferior to the previous school, upsetting your children. Or your commute to work may end up being an extra 4 hours on the freeway, getting to and from your new inherited home!

These issues can be exhausting and debilitating in the long run. Certainly something to consider.  In a perfect world, these issues would not surface and become a big problem when you inherit a home from a parent. However, it’s generally not a perfect world.

Improvements to Propositions 60, Prop 90 & 110

Revisiting several of the new property tax relief options… One can safely say, despite components that are perhaps not so helpful – that Proposition 19 is, in some ways, less restrictive than the old Proposition 60, Prop 90, and Prop 110.  There are no more county or sales price restrictions, and people can use the Proposition 19 property tax benefit more than once in a lifetime.

Proposition 19 Benefits

a) County restrictions are eliminated… The older rules limited the location of the properties in question. Proposition 60 restricted the tax basis portability within one county. Proposition 90 expanded that to a certain list of counties, so you could sell in one county and buy in another, but only if they were on that list.

b) Under Proposition 19… instead of limiting the counties of transfer, you can use this benefit anywhere in California.

c) No more sales price restrictions… Under Propositions 60 and 90, only transfers of “equal or lesser value” were eligible for tax basis portability.

d) A transfer of low tax basis… is now enabled by Proposition 19, regardless of value. However, certain adjustments to the tax basis are required if the purchase price of the replacement property is higher than the sale price of the previous home. 

New Proposition 19 Restrictions for Inherited Properties

On the other hand, under Proposition 19, beneficiaries could see a substantial increase in their property taxes for inherited property. While property tax relief in California had no exclusion or exemption limitations under Proposition 58, current property tax law exclusions under Proposition 19 apply strictly to the first $1,000,000 of inherited property value.

For instance, should your inherited property (i.e., primary residence) be assessed with a market value of $2,000,000 upon transfer to you as the official beneficiary, newly assessed value will be $1,000,000. In other words, $2,000,000 minus $1,000,000 (i.e., the first $1,000,000 of property value) – will equal a $1,000,000 limited exclusion.

Although you are most likely aware of other changes and limitations imposed on California property tax relief, it bears repeating.  As a beneficiary inheriting CA property taxes from a dad or mom, you now have to reside in a home only as a primary residence, if you are to take advantage of the Proposition 19 tax break, providing an exclusion from property tax reassessment at current market rates. You can no longer receive an exclusion from reassessment for an investment property.

Some say the underside to this reveals a change that mainly benefits the realtor community in California – using the Bridges family as their one and only singular example of inheriting CA property taxes from a wealthy parent, in this case a luxury beach- front property being used as a lucrative investment property; saving a great deal in taxes – while renting out to wealthy vacationers for $15,000 per month.

For whatever reason, critics of property tax relief have as yet produced very few specific examples of this type of inherited property used for “rental revenue” purposes, as opposed to “primary residential” purposes.  Incredibly, the property tax law removing Prop 13 and Prop 58 property tax breaks from investment properties is apparently based on this one oft-told, tired tale of the Bridges family!

As you probably also know – as an inheritor, you have only 12-months in order to establish your inherited property as a principal or primary residence, to avoid property tax reassessment. However, if your inherited property value is more than $1,000,000 over the original tax basis, you are most likely still facing property tax reassessment – and this can hit the pocketbook hard. This may encourage you to sell out, if that’s the case.

Help From Property Tax Specialists

If you don’t want to sell your inherited home, you may be inclined  to enlist the help of a property tax consultant like Michael Wyatt Consulting, or Devin Lucas Real Estate for example (great proponents of property tax breaks, and supporters of Propositions 13 and 58); or a trust lender like Commercial Loan Corp, with a loan to an irrevocable trust – and buyout your siblings, if you have siblings, who prefer to sell their property shares from the same inherited property you have received from your parents. 

You can establish a permanent, low Proposition 13 tax base this way, and take over 100% of the inherited property equity, with the trust loan paying off anything owed on the inherited home.   Plus, your siblings will end up with a good deal more cash from the trust loan than if they had sold out to an outside buyer.

Proposition 19 Changes  to the CA Parent-Child Exclusion

Let’s say a parent owns a home that is his or her primary residence plus a rental property (such as an apartment building or commercial building) in California. The home has an assessed value of $500,000 and a fair market value of $3,000,000. The rental property also has an assessed value of $500,000 and a fair market value of $2,000,000. Even though these properties have different current market values, their property tax liability is similar because they have the same assessed value. The combined annual property tax of both properties with a property tax rate of 1.25% is $12,500.

Prior to Proposition 19:  Let’s say the parent in this example wanted to transfer both properties to his son. There was no reassessment on the transfer of either the home or the rental property from father to son. The home before Proposition 19, under Proposition 58, could be transferred to the son irrespective of its’ value, since it was the father’s primary residence, and the assessed value of the rental property falls below the $1,000,000 threshold.

Therefore the combined annual property tax stays at $12,500. Moreover, there were no restrictions on the son’s usage of either property – therefore the son might have used both properties as investment properties if that is what he wished to do. 

Outcomes Under Proposition 19: Let’s say new assessed value of a house is $2,000,000 since the current market value is larger than the assessed value by more than $1,000,000 (i.e., the new assessed value has a current market value of $3,000,000 minus $1,000,000). The new assessed value for the rental property is its fair market value of $2,000,000 because no exclusion or exemption from reassessment at current market rates applies to transfers of property from parent-to-child other than a primary residence.

Yet if it is indeed a principle residence that beneficiary or heirs  are moving into, in keeping with the 12-month inherited property move-in deadline – all the bells and whistles really are still there to be taken advantage of – such as inheriting CA property taxes from parents,    having the right to continue transferring property taxes while avoiding property tax reassessment, while being able to use a Proposition 19 loan to an irrevocable trust to keep a parents low property tax base as well as buying out siblings’ inherited property shares – formerly a Proposition 58 transfer of property between siblings…

By the same token, heirs or beneficiaries of inherited property can make full use of any property tax transfer as long as these new restrictive requirements are met…  an inheritor can transfer parents property taxes and likewise keep parents property taxes thereafter upon inheriting CA property taxes from ones’ father or mother – and complete the process with a parent-to-child transfer and parent-child exclusion.  Californians are still able to successfully avoid property tax reassessment by inheriting CA property taxes from parents, in the final analysis, keeping a low property tax base when inheriting a home. The key to property tax relief in all 58 counties in California.  

The new combined annual property tax will be $50,000. In addition, the son has to use the inherited family house as his primary residence or that property is sure to be reassessed at the current market value of $3,000,000, which will increase the combined annual property tax for both properties to $62,500.

You see the difference? This accounts for the growing push-back on Proposition 19…despite all the positive elements that come with this property tax measure.

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

California Beneficiaries Learn How to Make Prop 19 Work For You - Part 1

California Beneficiaries Learn How to Make Prop 19 Work For You – Part 1

Representatives of the 2021 California Legislature don’t talk very much about Californians who are on the losing side of Proposition 19. They admit to “sweeping changes” in a generic sense, but rarely how those sweeping changes affect middle class people, not multi-millionaires, in specific actionable ways, such as unique property tax benefits thanks to Proposition 13… avoiding property tax reassessment, much to the benefit of regular working families’ bank accounts

We’re not talking about millionaires or billionaires here, we’re talking about middle class, working families who want their children or grandchildren to be able to inherit their home and be able to take advantage of a low Prop 13 tax base. It is as simple as that.

To take advantage of Proposition 19 or Proposition 58 to avoid property tax reassessment, heirs or  beneficiaries must move into an inherited home as a primary residence, within 12 months after the surviving parent passes away. Thereby avoiding property tax reassessment, as long as the offspring don’t decide to use this inherited property as an investment property… for vacation or rental purposes.   It sounds complicated, but it’s not.

For example, take a house in Santa Barbara bought by your parents in 1975 for $100,000.  By now, it’s valued at $2,000,000, yet the assessed value under Proposition 13 is $200,000. Therefore, your parents pay approximately $2,500 a year in property taxes, after local property tax assessments. Proposition 13, thankfully still hanging in there, allows for an unlimited parent-to-child exclusion, or “principal residence exclusion” as attorneys would call it; permitting offspring to inherit this home plus the $200,000 assessed value and the low $2,500 yearly tax hit. The 2% annual cap protects your property taxes so they can go up only $50 roughly per year.

Prop 19 caps the “principal residence” parent-to-child exclusion is now, since Feb 16, 2021, capped by Proposition 19 at $1,000,000 meaning, if we’re using our example of a $2,000,000 house in Santa Barbara (an admittedly modest home for Santa Barbara)… the additional $1 million in value will result in property taxes of $10,000 plus per year. 

Paying taxes only on 50% of your home’s value does sound like a great way to save on property taxes. However, it this can also be a negative for numerous working families… as there are also other costs, for instance maintenance, utilities, water, air conditioning and/or heat, unexpected repairs, certainly there is insurance and frequently a mortgage.

Factoring all this together, if you inherit a home and decide not to move in as a primary residence – your property taxes will go up abruptly and significantly! Regrettably, your lovely new inherited home will be reassessed at the full market value of $2 million, resulting in an annual tax bill of over $25,000! Not an attractive outcome for a middle class homeowner.

The Los Angeles Times characterized Proposition 19 as a tax law that: “…would just expand the inequities in California’s property tax system.” They claim it is a “…cynical and unwelcomed melding of good and bad tax proposals”.

The San Francisco Chronicle wrote: “It’s still a flawed package, designed to rev up home sales that benefit real estate agents who could reap more in commissions.”

And Mercury News wrote: “Prop. 19 merely plugs one hole in the state’s porous property tax laws while creating another. It’s time for holistic reform that simplifies the system and makes it more equitable…”

And yet, ironically, many of the same California newspaper editors that now vehemently appose Proposition 19 had formerly been printing articles and editorials that repeatedly indicated that limiting the ability to keep parents property taxes in California or “…limiting or ending the Proposition 58 parent-to-child exclusion was a good thing for California”. 

Oddly enough, these Editorials and Op-Eds were trying to convince CA homeowners that the Proposition 13 enabled process of transferring property taxes, and obtaining a parent to child property tax transfer was not — as the entire state of California has thought since 1978 — actually beneficial to homeowners and beneficiaries inheriting property from parents.

– the ability to transfer parents property taxes and keep parents property taxes in California when inheriting property taxes, were not positive property tax benefits for beneficiaries or homeowners.  Even though now, their official opinion is quite the opposite.

>> Click Here: For Part Two “California Beneficiaries Learn How to Make Prop 19 Work For Them”

The Affect of Prop 19 on the Housing Market & Working Families in California

California Proposition 19 Property Tax Assistance

California Proposition 19 Property Tax Assistance

Jeanne Radsick, president of The Realtors Group, said recently:  “it’s vital  for homeowners who may be empty-nesters or who are looking to move for health reasons to have more options.  And if they can maintain  stable tax basis, they can live a similar life.  There’s not enough senior housing to accommodate older folks otherwise.”

Still, beneficiaries of Proposition 19 are those who already benefited the most under the state’s existing property tax laws.  Homeowners 55 and older in California are more likely to be older and not poor.  Although, an analysis of Proposition 19 by the California Budget and Policy Center, has some interesting things to say. They are a non-profit that is an advocate for working families and lower-income Californians…. 

At any rate,  their analysis tells us that homeowners in California tend to be more white and wealthier and older.  They seem to be forgetting that homeowners  also happen to be middle class and blue collar; but the study ignores the fact that middle class and working families are the principle users of Proposition 13, Proposition 58 and now of course Prop 19 exclusion for reassessment of property taxes.  Although, the real estate industry does i fact stand to benefit from the increase in home sales that is expected as a result of the Prop 19 measure.  But there’s nothing we can do about it, so we may as well focus on what we can do to lower property taxes.

However. Property tax relief is not chiefly for wealthy Californians nor was it meant for them.  In fact if you crunch the numbers without bias, the high volume of beneficiaries using trust loans to buyout siblings, establishing a low property tax base; while using the parent to child exclusion to avoid property tax reassessment… are mostly middle class.  Not millionaires. We don’t quite follow why they keep making that argument.  Millionaires surely aren’t the only folks interested in Proposition 13 and Prop 58, property tax transfer, or rather the ability to  transfer parents property taxes, to keep parents property taxes while inheriting property taxes during a parent to child transfer, or parent to child exclusion. 

We certainly see more working families and upper middle class families buying out a siblings’ share of a mutually inherited home, than we do corporate CEOs. Another key Proposition 58 benefit… allowing for the exclusion for reassessment of property taxes on transfers between parents and children. Not just for rich people!

Ms. Radsick said that protecting Realtors’ interests was not a driving force behind the push for Proposition 19.  “It is not about making money for the Realtors, for crying out loud,” she said. “It’s about tax fairness for people who need help.”  We need to sit back and really ponder that statement.

Liam Dillon at the Los Angeles Times had some interesting views on the   evolving property tax breaks available to Californians.  He writes:  “The biggest winners under Proposition 19 would be homeowners 55 and older who would pay lower property taxes when moving to a new, more expensive residence.  Currently, homeowners who are 55 or older have a one-time opportunity to retain their existing tax benefits if they move to a home of equal or lesser value within the same county. They can do the same when moving between Los Angeles and nine other counties.

Mr. Dillon goes on to say:  “Proposition 19 would further ease the tax burden by allowing the same group of senior homeowners to blend the taxable value of their old house with the purchase price of a new, more expensive home, reducing the property tax payment they’d otherwise face.   Disabled homeowners would receive the benefit as well. The rules under Proposition 19 would extend to every county in the state, and homeowners could take advantage of the break as many as three times when they decide to move.”

The downside, from our viewpoint, is the fact that given higher property taxes, using  inherited homes as rental properties may soon become unprofitable, without raising rents significantly… and that is not likely to be an effective long-terms solution. The fact of the matter is, these new property tax laws may encourage a lot of residents to sell properties they own, that they intended to leave to their heirs. Hence, realtors and brokers make more money, and that was one intention right from the beginning for Prop 19.

The concern surfacing among analysts revolves around the possibility of important companies leaving California for more business-friendly, lower-taxed states, taking their jobs with them.  As well as young white collar folks in their 20s and 30s, seeking more affordable property to settle into in nearby states; with a new job; focused on raising a family where they won’t get blasted every year with super high property taxes and income taxes, along with a high cost of living.

But, on the other hand… Higher property taxes or not, California will always be an attractive place to live.  There is still exclusion for reassessment of property taxes; there is still sunshine 12 months per year, an ocean nearby, convenient cities and beautiful rural areas 30 minutes away. And you can always find a good deal on most things, if you look for it.  People are always going to want to live in California.