Proposition 19 Tax Hike Versus Proposition 58 Property Tax Breaks

Proposition 19 Tax Hike Versus Proposition 58 Property Tax Breaks

Proposition 19 Tax Hike Versus Proposition 58 Property Tax Breaks

The slim-margin success of California property tax hike Proposition 19 has been due to an odd combination of elements. Not held up by a great deal of media support – yet enjoying all the benefits of a massive promotional budget, with first-rate brand awareness and PR; etc. – allocated by several established high-profile organizations lending a great deal of credibility to the Proposition 19 campaign.

Proposition 19 concentrated on the (supposed) well-being of seniors; on the enhanced profitability of the California realtor community, and on the escalated financial health of the state educational system.  Although  all the Proposition 19 public relations language supported all those focus points… how sincere it was remains to be seen.  Oddly enough, press and media support never mirrored the robust financial support that Proposition 19 enjoyed.

Only a handful of organizations such as ACLU of Southern California, the Family Business Association of California,  the Howard Jarvis Taxpayers Association, and League of Women Voters of California supported the effort to defeat Prop 19 – coming up with a mere $58,000 to support and protect Proposition 58, Proposition 13, and the right to continue transferring property taxes…

Meanwhile, a  tremendous parade of well heeled organizations backed the Proposition 19 tax initiative, and fought hard to get it passed, donating  some  $46,458,168.88… The astounding amount of capital raised to get the proposition passed was led by the California Association of Realtors, donating a stunning $35,710,000;  National Association of Realtors, with $4,823,500; California Professional Firefighters Ballot Issues Committee with $100,454; and the Operating Engineers Local Union No. 3 Issues Advocacy/Ballot Initiative PAC with $10,000.

Other supporters were California Senior Advocates League, California Statewide Law Enforcement Association, Californians for Disability Rights, Congress of California Seniors, California State Federation of Labor, CalAsian Chamber of Commerce, California Black Chamber of Commerce, California Business Roundtable,  California Forestry Association, California Hispanic Chamber of Commerce,  and  the California NAACP State Conference – just to name a few.  The full list of supporters is extraordinary. 

The California Legislature boldly claims that local governments and schools could “gain tens of millions of dollars of additional property tax revenue every year…” These extra revenue gains, they anticipate,  “might grow over time… to a few hundred million dollars per year.” “Might” and “could”…  But no one knows for sure.  Many feel these numbers are exaggerated.

Did those politicos running California, along with the real estate  organizations who had enough in their war-chest to throw $40,000,000 at this tax bill – ever consider that a large number of family farms and other companies will go under, as they have said they are in danger of doing due to overly high taxation, Covid, and poor sales… and will stop paying taxes altogether at that point. 

Did they ever consider that  if you topple over or mess with California’s right to transfer property taxes when inheriting property taxes from parents… or limit beneficiaries’ ability to keep parents property taxes for as long as needed; in fact to tamper at all with the legal right to take advantage of property tax transfer benefits, or the transfer of parents property taxes upon inheriting property taxes in general… or limiting a families’ ability to get a trust loan to buyout a co-beneficiary’s inherited property, to take advantage of Proposition 58 to avoid property tax reassessment… Or utilize property tax transfer, namely the right to transfer property taxes, parent to child transfers and parent to child exclusion, is always dangerous to tamper with or to try to  “fix”  a system that has been in place for decades  and that is working well, requiring no actual need of fixing.  

Many who are not in danger of going under have claimed they are fed up with  the high cost of doing business in California — and tax hikes of any kind would push them over the line, forcing them to leave California for more corporate-friendly states, with lower taxes in general.  They may not have the right to transfer property taxes in a new state, however their income tax and living expenses in general are likely to be far less expensive than in California.

Did any of the short-sighted folks pushing property tax increases like Prop 19, limiting and even removing the right to transfer property taxes as well as high income tax, ever stop to consider that in the final analysis California loses out on a lot more tax revenue going down this avenue.  In fact, if you examine the ten highest income tax states (or legal jurisdictions) you see right away how high taxation already is in California, even  before property tax increases…

  1. California 13.3%
  2. Hawaii 11%
  3. New Jersey 10.75%
  4. Oregon 9.9%
  5. Minnesota 9.85%
  6. District of Columbia 8.95%
  7. New York 8.82%
  8. Vermont 8.75%
  9. Iowa 8.53%
  10. Wisconsin 7.65%

Not only that, if you factor in the thousands of good white collar and  blue collar jobs that exit with those companies when they leave the state, take note of the fact that those jobs are gone forever!  Moreover, all those workers put an additional strain on the system, collecting   unemployment checks plus no longer themselves paying out taxes on the level they were before… Many of them in fact leaving the state to find work in nearby states with lower taxes and lower living expenses. Again, less tax revenue going to the California.  Did this not occur to anyone in the State Government, smart folks with PHDs and MBAs and law degrees…? You would think it would have.

Opposition in the Press

Yet with all that financial support – press and media support was stunningly low, in terms of support for Proposition 19.  Editorial Boards opposing this property tax ballot looked something like this:   

• The Orange County Register Editorial Board: “But Prop. 19 is best understood for what it is: an attempt by real estate interests to accomplish what they couldn’t accomplish two years ago by pandering to the state’s firefighters union. This is a special-interest measure that seeks to raise hundreds of millions of new tax revenues to appease yet another special interest. Prop. 19 has one good feature — portability. Counties ought to enable it forthwith, as a few already have done. But Prop. 19 is a cash grab, not tax reform; it’s not fair to property heirs, and it buys off a union so it has a better chance of passing. Vote it down.”

• Mercury News & East Bay Times Editorial Boards: “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. This isn’t it.  The longer a person had owned their current home, and already benefited from inordinately low tax bills due to Prop. 13, the greater the tax break on the new property. And those who downsize would often be competing with first-time buyers for more-affordable smaller homes. The real reform would be to abolish the tax-transfer program, not expand it. Vote no on Prop. 19.”

• The Bakersfield Californian Editorial Board: “Proposition 19 is another do-over on the ballot. Two years ago, the real estate industry spent $13 million on a similar initiative campaign to expand the program statewide and enhance the benefit for eligible homeowners. Sixty percent of voters rejected the initiative. They should do the same this year.”

• Los Angeles Times Editorial Board: “But Proposition 19 would just expand the inequities in California’s property tax system. It would grossly benefit those who were lucky enough to buy a home years ago and hold onto it as values skyrocketed. It would give them a huge tax break and greater buying power in an already expensive real estate market. It would skew tax breaks further away from people who don’t own a home or who may be struggling to buy one.”

• San Francisco Chronicle Editorial Board: “But it’s still a flawed package, designed to rev up home sales that benefit real estate agents who could reap more in commissions. It favors one narrow segment of the tax-paying public but does nothing for the rest of the state’s home buyers. The measure shows the convoluted extremes that California’s tangled property tax system produces.”

• The Desert Sun Editorial Board: “What seems clear is that the main backers of this measure — Realtors and the firefighters union — stand to gain greatly in the forms of expected increased home sales and related sales commissions and the measure’s dedication of some of the state’s ultimate new tax proceeds specifically to firefighting efforts. Firefighting must be a priority of state and local governments. Budgeting for anything so vital by this type of special interest ballot measure is the worst way to do so. Lawmakers should be making such key spending decisions in their regular budget work.”

• The Press Democrat Editorial Board: “Proposition 19 would allow people to buy more expensive homes anywhere in the state, while capping their property taxes. Moreover, they could repeat the maneuver three times. That might provide lots of business for real estate agents, but it would undercut school districts and local governments, the beneficiaries of property taxes. […] California’s tax system is overdue for an overhaul, but these measures make piecemeal changes that are as likely to create new problems as solve old ones. The Press Democrat recommends no votes on Propositions 15 and 19.”

Editorial Boards supporting this property tax ballot was slim, and looked something like this: 

• San Mateo Daily Journal Editorial Board: “This would enable people in high cost areas to move more easily, opening up room for new residents to the area.”

• The San Diego Union-Tribune Editorial Board: “While critics see this as a gift to the wealthy elderly, the great majority of older homeowners are middle-income, not rich. Allowing them (as well as disabled homeowners and wildfire or disaster victims) to downsize without suffering a huge property tax hit is a humane policy that helps people retire with much less financial stress. It would also promote fluidity in home sales, increasing the availability of larger homes for families with children.”

The logic surfaced in these two supportive editorials, frankly, make no sense at all; and do not line up with the data points in the actual tax measure.

As Californians gear up to repeal this tax measure, it is important to remember that Proposition 19 changed the rules for tax assessment transfers. Homeowners used to be able to transfer their tax assessments to a different home of the same or lesser market value, which allowed them to move without paying higher taxes.  Homeowners who were eligible for tax assessment transfers were  over 55 years old, frequently with moderate disabilities, often becoming more severe as they grow older.   Revised property tax relief now looks something like this: 

The ballot measure allowed eligible homeowners to transfer their tax assessments anywhere within the state and allow tax assessments to be transferred to a more expensive home with an upward adjustment. The number of times that a tax assessment can be transferred increased from one to three for persons over 55 years old or with severe disabilities (disaster and contamination victims would continue to be allowed one transfer).

Parents and grandparents used to be able to transfer primary residential properties to their children or grandchildren without the property’s tax assessment resetting to market value. Other types of properties, such as vacation homes and business properties, could also be transferred from parent to child or grandparent to grandchild with the first $1 million exempt from re-assessment when transferred.

Now… the right to transfer property taxes is limited in certain circumstances. The Parent-to-Child Exclusion and grandparent-to-grandchild exemption is eliminated in cases where the beneficiary does not use the inherited property as a primary residence, such as using inherited property as a rental property or vacation home. When the inherited property is used as a primary residence but is sold for $1 million more than the property’s taxable value, an upward adjustment in assessed value would occur. The ballot measure also applied these rules to certain farms. Beginning Feb. 16, 2023, the first $1 million is adjusted each year at a rate equal to the change in the California House Price Index.

Beyond the sizzle that the California Legislature and the Realtors sold us on – it’s important, in fact crucial, that Californians remember the steak… and not continue to be fooled by the sizzle in he future; looking towards the collective fed up mood in the state, regarding this tax measure… as support slowly gathers across the state to repeal Proposition 19.

Lowering Property Tax Rates for All Homeowners During the Pandemic

Lowering Property Tax Rates

Lowering Property Tax Rates

In California, Governor Gavin Christopher Newsom signed an executive order on May 6th, 2020, to extend the deadline for homeowners who were scheduled to pay their property taxes on April 10th – and to extend business property owners’ deadline of May 7 to complete and file their business property statement. This was supposed to “provide relief for taxpayers suffering financial hardship due to COVID-19”.  Moreover, Governor Newsom referred to his offer to taxpayers as “property tax relief…”

To be clear, we neither support nor oppose the governor of California here at Property Tax Transfer.  But when we hear something this blatantly disingenuous coming from any politician, we simply must question it.  Property tax relief is property tax relief.  Property tax relief is Proposition 13 or Proposition 58… Genuine property tax relief in California is the lessening, or  lowering, or complete elimination of – property taxes.  What Governor Newsom is referring to is not property tax relief… It’s  property tax deferment.  Putting off payment for a few months.  We would appreciate it very much if political leaders in California would not use such an important term as “tax relief” falsely.

Now, it is entirely possible that the Governor actually wanted to forgive payment completely for certain taxpayers. And under the severe conditions imposed on all of us due to the Coronavirus health crisis and resulting job losses, and lower income suffered by millions of workers in the state – the governor could very possibly have been besieged by political colleagues, and talked out of tax relief – into  tax deferment…  However, why not hold out and insist on giving taxpayers a real break through enhanced Proposition 58 and Proposition 13  – or actually forgive most of these property taxes completely for one  year, or at least discount them considerably?  According to state economists, it would not even have amounted to one quarter of the tax cuts the federal government gave to the wealthiest Americans two years ago!

Many economists have asked, why is it that  a few hundred billionaires and multi-millionaires recently received hundreds of thousands of dollars in tax cuts as “tax-welfare” and “corporate-welfare”, so to speak.  Yet, in the midst of an unprecedented health crisis, resulting in the worst job loss disaster since the Great Depression – 160 million middle class and working class property owners received nothing even close to the trillion dollar tax cuts afforded to just a handful of mega-wealthy families only a couple of years ago.

Many financial analysts in California have pointed out that the folks in power in this state did not mind shelling out trillions then – yet now on a state level, when middle class taxpayers desperately need an obvious financial boost such as a property tax cut, or property tax break, the best our state government can do is come up with an essentially useless  tax deferment proposal, and no actual tax cut… or tax relief.  These analysts do have a point.

Local government apologists claim that the $140 billion in property taxes that California typically receives every year is urgently needed right now to pay for essential pandemic services – to cover the cost of public health departments in 58 counties; to cover public hospitals; and – to pay for the school system, which is always sort of tacked on, as if they can’t find that money anywhere else. Local California government agencies insist that they stay open only due to funding that is largely based on… property taxes.

State agencies wrote a letter to the Governor, stating, “Delaying such a large infusion of general funds for two to three months would have a serious impact on their ability to provide these services.” They did not even want to go along with the proposal for deferment that the governor suggested! 

Some folks in the press wisely asked – is not keeping millions of Californians (many whom are elderly, and living on a fixed income) from being evicted and completely losing their home not anessential pandemic service”?

Gov. Newson has forced businesses to shut down, and most certainly will again, understandably and with good intentions – sending workers home to try to slow the spread of Covid 19. Admittedly, the pandemic is out of control in California, as it is in many red states. Folks in all these states want their “freedom”… and so it looks like they are therefore free to avoid wearing masks, free to contract Coronavirus, and free to infect others.

The Governor, ignoring this mass appeal for freedom, closed down businesses back in May anyway.  As a result,  many homeowners were not able to pay their property taxes. Companies all across California have closed to comply with Governor Newsom’s shutdown order to slow the spread of the Coronavirus that causes COVID-19 respiratory complications.   Yet if you’re going to close down those companies, hopefully temporarily, and send workers home at half or no pay – wouldn’t it make sense to then give those workers a significant financial break, as in increased property tax breaks… somewhere along the line, somehow? Such as Coronavirus Prop 58 and Proposition 13 property tax relief!

Certainly homeowners and beneficiaries inheriting property from parents can still get a trust loan to buyout co-beneficiaries, and lock down a low property tax base… but reinstating Proposition 58, in terms of the changes Prop 19 has brought about, and adding more teeth to existing property tax breaks that can save Californians significant amounts of cash every month… Would be so relevant during a pandemic, that it’s almost absurd to have to bring it up — when it’s not even in discussion in the Congress or  the Senate.  Not to mention the California Legislature.

So… when the governor calls a two or three month property tax deferment “property tax relief”… it’s no wonder that taxpayers reacted negatively.  Property tax relief refers to lowering the amount to be paid.  Not deferring the payment date!

Governor Newsom told us recently that more than 1.6 million Californians have filed unemployment insurance claims, which the state is struggling to organize and process, to get those checks out. It’s fine to send folks that are out of work unemployment checks – they have paid into that every working week.  But wouldn’t it make even more sense to give them all a property tax break, eliminating Proposition 19 restrictions in light of the Covid outcomes? Preferably forever… But at least as long as the Covid virus rages?

Parent to Child Transfer

Parent to child real estate transfer

Parent to child real estate transfer

It’s time we ask ourselves – exactly what kind of affect will CA Proposition 19 most likely have on California?

There is a lot more to this than meets the eye. As of June 6, 1978 California has been the one state in America with direct access to a low tax base model, becoming accustomed to the classic Prop 13 property tax cap… working in tandem with the 1986 Proposition 58 protected property tax transfer & parent to child exclusion, making it possible thanks to Proposition 58 for homeowners & commercial property owners  to avoid property tax reassessment at current market  rates.   Basically forever, as long as they retained the property they inherited. 

Proposition 19 has now cut deeply into critical Proposition 58 property tax benefits, closing the door on the parent to child exclusion (i.e., parent to child exemption), if a property owner is not able, for whatever reason, to move into their inherited home within a year after the passing of the parent that has left the house and/or land to his or her heirs. 

Proposition 58, and of course Prop 13 tax relief, as well as trust loans to buyout co-beneficiaries while locking in a low tax base, has been a life saver for so many estate heirs and trust beneficiaries in California. Life everywhere is hard these days for middle class residents, and California is an especially expensive state to live in.  Moreover, inheriting a home from a parent is a major asset, and being able to save thousands of dollars on property taxes during the initial property transfer, and yearly, certainly adds value to the good fortune provided by these property tax breaks. 

A quote from the Los Angeles Times summed it up succinctly on Oct. 19, 2020:

…a qualifying homeowner who owns a home with a taxable value of $200,000 that is worth $600,000 on the market would pay roughly $2,200 in property taxes now. If the homeowner moves to a $700,000 house, the homeowner would pay $3,300 a year in property taxes under Proposition 19. Without the initiative, the same homeowner would pay $7,700 annually…”

Of course they forgot to mention that this property tax “initiative” must be implemented strictly within a year after the decedent passes away.  Or the door to the tax break slams shut. 

Yet, adding absurdity yet again to redundancy, the Los Angeles  Times once again repeats the one, almost comical, example of “families taking advantage” of this sort of property tax relief, using your right to a parent to child transfer exemption…  indicating repeatedly that there are numerous examples of inherited homes and Prop 13 as well as Prop 58 tax breaks being used by all these rich folks as money making outrages , renting our inherited properties on the beach for $16,000+ per month, and never using it as a primary residence. 

Yet it truly is comical that after 40 years we still have not heard  about one other specific family in California engaged in this sort of money-making practice, but “Jeff Bridges and his siblings”.  Now, we’re certainly open to hearing about other families involved in property tax transfer activities like this, inheriting property taxes from parents at a super low base rate every year, just to be a beachfront landlord raking it in every year from other rich people who are addicted to sun and surf. Yet no other family name ever surfaces. 

And again and again we hear about this one family, the  Bridges, taking advantage of Proposition 13 by renting out luxury homes to wealthy residents… once again in the LA Times in Oct. of 2020, 

“The provision has since been dubbed “the Lebowski loophole” after The Times found that “The Big Lebowski” actor Jeff Bridges and his siblings had advertised a beachfront home in Malibu inherited from their parents for nearly $16,000 a month in rent despite an annual property tax bill that’s a fraction of that amount.”

So is the LA Times telling us that they simply cannot come up with one other family that inherits a luxury property like this and then makes a killing every year renting it out?

These property tax benefits are indeed genuine, and actionable for mostly middle class families.  Not rich movie stars like Jeff Bridges.  The parent to child transfer exemption has always been there for middle class home owners and beneficiaries… since 1986, and actually since 1978 with the advent of Howard Jarvis’  Proposition 13.

The ability to avoid property tax reassessment, to exercise your right to a parent to child transfer exemption, even for a modest secondary property from parents, really can be a life saver for middle class residents who are not rich, and need every break they can lay their hands on.  This conspiracy theory that gives Californians the impression that these tax breaks are mainly for wealthy property owners is completely  false.  If anything, you could call it a middle class tax break, period… and you’d be 100% truthful. 

Now all of a sudden that tax break is gone unless you move into your inherited property within one year of having inherited it.  Is this simply to upset the Bridges family?  And if you don’t move into your inherited home as a primary residence within one year you will lose your property tax transfer benefits… you will lose your parent to child transfer exemption.  You won’t be able to transfer parents property taxes, there will be no inheriting property taxes fro parents.  If you miss that 12-month deadline your ability to keep parents property taxes will evaporate completely.  And if you don’t think this is real, guess again. 

Critics of property tax relief in California, proponents of Proposition 19, repeatedly tell us, “Fine! What’s the big deal anyway? You can move into inherited property within a year and then enjoy your right to avoid property tax reassessment forever!  So what’s the problem:”  Well… the problem is that perhaps some beneficiaries  can’t make that move so easily within year one. Perhaps this is not the most realistic tax revision ever voted into law.

Over 650,000 new homeowners, beneficiaries, took advantage of a Proposition 58/Prop 13 tax break over the past ten years;  that gave them the right to maintain their parents’ low property tax base upon inheriting a home from a parent.  How many heirs or beneficiaries inheriting a home this way over the next ten years will lose inherited property because they will not be able to move into their inherited home smoothly, without problems, as a primary residence within 12 months?

No one knows exactly.  However, we can safely say – a lot!  More revenue for the Legislature.  More homes on the market for realtors.  More cash to pay off unfunded state government pensions.  That, we know.

There are a myriad of reasons why Proposition 19 will turn out to be inconvenient and awkward at best – to be, at worst, an unnecessary tax measure that will effectively fray the fabric of the estate and property inheritance system in California. For example:

     Ones’ job may be an extra 60, 90, whatever, hours away on the freeway getting to work from this new inherited home from mom or dad – and then back again after work.

•     Perhaps a spouse also may have significant travel issues, to and from work, regarding distance to and from a new home.

•     School for children can easily be an issue, if an inherited home is in a new school zone.  All familiarity, neighborhood friends,  teacher relationships, social relationships – all gone, if they’re near where you lived previously. This can cause all sorts of issues for children.

•     A beneficiary could be disabled; and prior to moving abruptly within a year, may need to start fixing up an inherited home to accommodate disabilities – generally costing a good deal of money to implement physical changes of this kind, ramps, safety measures in various rooms, etc.

     Many beneficiaries are senior, which would make such an abrupt move very difficult at best – and for many, downright impossible.

     There is also the matter of selling your inherited house, most likely for a good deal less than it’s probably worth due to Covid issues affecting many California properties; over the next decade.

     Lastly, and ironically, all this hub-bub regarding additional presumed mountains of revenue from new Proposition 19 driven property taxes will, if Jon Coupal and the Taxpayers Association are correct, serve mainly to pay for unfunded state government pensions.  Perhaps a small fraction for the schools system… But that’s about it.

So, as we originally indicated – there is a lot more to this issue than meets the eye.

PART TWO: Property Tax Relief Fights for Its’ Life in California…

A couple of things worth mentioning, as we’re on the subject of replacing political noise with fact-based information…

The Coronavirus driven mortgage  foreclosure and credit card default catastrophes are coming, given the tens of millions of people that are unemployed nationally… with millions unemployed in California alone.  Let’s not forget that. And the CA Legislature wants to raise property taxes in the middle of a pandemic?

Making matters even scarier for people, there is talk about  eliminating the payroll tax,  unraveling Medicare, and Social Security so those programs are defunded by 2023.  Not a particularly good idea in the midst of a Covid-19 pandemic, where we saw 84,000 people infected in one day last week.  Does California really need a tax hike on property, in a time like this?

We’d have to say no. We don’t need a Proposition 19 to unravel crucial elements making up the foundation of property tax relief in California… And we don’t need a Proposition 15 to take away much needed tax breaks for already struggling landlords and commercial property owners in the state of California. Frankly, we also do not need politicians politicizing the Coronavirus crisis, and we don’t need PR and disinformation from the federal government. 

What we do need, however, are some ways to help home owners, and renters, spend less while unemployment rages – and afterward as well. We need a permanent property tax relief system in place in the United States, just like they have in California, to genuinely help Americans spend less and save more. Making sure, for example, that we have the ability to transfer parents property taxes, when inheriting property taxes, so we can avoid property tax reassessment. Without present value tax assessment taking a large bite out of our savings every year. 

And of course on top of parent to child transfer protections, we need, just like Californians have – the legal right to transfer parents property taxes when inheriting property taxes; with the ability to keep parents property taxes, in other words property tax transfer that maintains everyone’s property taxes at a predictable low base level, say 2% no more, with iron clad parent to child transfer of low property tax rates when we inherit property from our parents or parent – or, as attorneys call it, “parent to child exemption”.  Exclusion from present day property tax evaluation… avoiding property tax reassessment.  As they do in California.

Also, with the ability to buyout siblings’ property shares with a trust loan, through Proposition 58, always insuring we keep our parents low property tax rate; avoiding property tax reassessment. Also, being able to buyout sibling’s share of an inherited house – as realtors call it, “transfer of property between siblings” or “sibling to sibling property transfer”.  

Californians take these property tax relief measures for granted! Buying my brother’s share of our house or the transfer of property between siblings; Buying out siblings’ share of a house; Buying out property shares through cash to a trust loan from a trust lender, such as Commercial Loan Corp, for example. Imagine that. Meanwhile,.

Most Americans don’t even know what these terms even mean, or what Proposition 13 or Proposition 58, or trust loans, even signify. Just do some initial research on sites like https://cloanc.com/category/prop-58 to learn up on trust loans with Proposition 58 or Prop 193 – keeping a low tax base upon beneficiary buyout of sibling property shares, or as realtors call it, “the transfer of property between siblings”, and “lending money to an irrevocable trust“ – typically from an irrevocable trust loan lender.

Just take a careful, thoughtful  look at CA State Board of Equalization, at https://www.boe.ca.gov/ or do some easy research on info blogs like https://propertytaxnews.org simply to get the basics down, so you know what you’re talking about when you talk to snooty staffers answering calls at your representative’s office in Washington DC.

>> Click Here to go to Part Three…

PART ONE: If Every State in America Had Property Tax Relief Similar to California…

California Proposition 58 Property Tax Transfer

California Proposition 58 Property Tax Transfer

Considering every state in America, if we were to project into the future and take into account all the ways we could avoid wasting money as a  result of inheriting  property from our parents… If you were expecting property as an inheritance – what would you do to make sure you were inheriting a home you could afford to keep? 

Nothing comes to mind?

What if every state in the union embraced the same sort of property tax breaks that California has employed since 1978… when Proposition 13 was voted into law so every residential, industrial and commercial   property owner would be able to avoid property tax reassessment. 

Subsequently, CA Proposition 58 was passed in 1986, enabling the transfer of property between siblings, making it possible to buyout your siblings’ property shares, plus insuring that you keep parents property taxes, basically forever – maintaining a low Proposition 13 guaranteed property tax base, capped at  a 2% maximum rate – all with the help of a loan to an irrevocable trust. 

Sounds simple, however it’s not quite as simple as it sounds. You need a reliable trust lender to help you, and you must qualify for all  the requirements necessary to be approved for Proposition 58 – in order to take advantage of it. 

Given the stunning unraveling of the job-based economy over the past several  months in the United States, due to all the lay-offs and so-called “furloughs” resulting from the Coronavirus crisis – as of August 2020 there are over 51 million lost jobs nation-wide, and more than 6.7 million unemployed in California alone… although what percentage of that is  temporary or permanent – we don’t yet know.

Frankly, the danger that the loss of millions of jobs poses to the country, not to mention the startling lack of engagement exhibited by the federal government, only exacerbates the health crisis.  Therefore, it’s clear to most of us that it’s high time lawmakers in Washington begin to put in place some permanent financial guardrails to help working class and middle class households lower expenses to some degree, to hopefully free up some spending cash for those that are out of work, with no resolution yet in sight. 

One such guardrail would be to free up additional personal spending cash by lowering property taxes on the middle class, whose spending habits, historically, keep the economy flowing.  It would make a great deal of sense right now, with no end to the Coronavirus challenges in sight, to not defer certain taxes – but to completely eliminate them! 

Most likely,  the least risky form of taxation to lower right now would be property taxes, as we have a successful property tax relief model in California to mirror in all the other states – preventing politicians from claiming that it probably wouldn’t work out, so why bother… why try.   Clearly, property  tax relief has worked out, and continues to be a successful system, in California. 

It would certainly help to prop up a flagging middle class besieged by an unprecedented Pandemic, and corresponding recession, to put in place residential and commercial property tax breaks similar to Californian property tax relief measures made possible by CA Proposition 13, enabling property owners, in the wake of  transfer of property measures, to avoid property tax reassessment every year… Making sure to transfer parents property taxes when  inheriting property and inheriting property taxes from parents… in other words inheriting property taxes that equal the lowest taxes your parents paid after 1978. 

Prior to 1978, property taxes were unpredictable and way too high in California… until trust  beneficiaries and heirs of estates were given “parent to child transfer”, or “parent to child exclusion” as real estate attorneys refer to it.  

Interestingly enough, since 1986 California trust loans have been used to resolve seemingly unsolvable inherited property conflicts between siblings; working alongside CA Proposition 58. Once approved, Prop 58 helps heirs to buyout sibling property through trust liquidity – siblings that are intent on selling their property shares… Generally called a beneficiary buyout of sibling property shares, sibling to sibling property transfer, or a transfer of property between siblings – siblings looking to sell their property shares wind up with more liquidity in trust than if they had sold out directly to an outside buyer.  Conversely, folks looking to keep their inherited property can avoid property tax reassessment at present day rates, going forward; retaining the same low property tax base their parents had. 

That’s the real genius of the property tax relief system in California… and the bottom line gift for middle class home owners and non-wealthy landlords in California – the legal right to avoid property tax reassessment. 

The magic of trust loans from trust lenders is that they make it possible, when working in concert with Proposition 58, to equalize cash to beneficiaries – in other words Prop 58 helps heirs to buyout sibling property – if they’re looking to sell an inherited property held up by beneficiaries of the same trust that are looking to keep the same inherited home and/or land…

For once, this would force estate property conflicts to end up as win-win scenarios for heirs of estates or trust beneficiaries in states other than California.  And we’re talking about beneficiaries who generally do not get along terribly well, as is illustrated by the frequently hard-nosed conflicts associated with their inherited property issues… where one or two want to keep their inherited home…  while several wish to sell… One wants to evaluate the property at one amount, the others at a different amount. Many families, typically the siblings, just can’t agree on anything.

And yet other families agree on everything in these estate or inherited property matters…. So you just never know.  However, typically there are some problematic conflicts to address.  And that’s where a trust lender tends to come into the picture – as we have said, to “equalize cash” for  those who wish to sell, while setting  a low base tax rate for siblings who are set on keeping the home inherited from beloved parents. 

>> Click Here to go to Part Two…