Identifying & Accessing CA Property Tax Breaks

California Proposition 19

California Proposition 19

Californians more or less take for granted the fact that the tax breaks provided by property tax measure Proposition 13, passed by a veritable landslide by voters in 1978 – locks in a home’s “base-year value” to reflect what it was when the real estate changed ownership most recently. As we all know, this caps yearly property tax increases at a 2% tax rate – up until the time the property changes ownership again.  All property tax relief measures in California exist to allow property owners of all kind to continue avoiding property reassessment.

As most of also know by now, the portion of property that is transferred, upon changing ownership, is reappraised to current market value. Obviously, if that real property has appreciated in value since the new transfer – the outcome could be a serious increase in the new owner’s property tax bill!

On the other hand, California does allow for exceptional property tax exclusions to the rules and regulations that now govern a change in ownership for married or unmarried couples, families and property co-owners that wish to avoid property tax hikes. Naturally, there are requirements. California’s property tax exemptions are written into the California State Constitution (Article-13), unlike many other states, which utilize exclusions  from property reassessment that are controlled by state tax laws  or local rules and regulations. 

California initiatives managed by County Tax Assessors, that are based on personal, individual data, as opposed to state statutes, would be, for example:

A primary residence: of which the initial $7,000 of the full value of a home is excluded, or exempt, from property tax.

Combat Veterans: can qualify for a substantial exemption. This can be claimed by someone serving presently in the military who is no longer serving, but has been honorably discharged. The same applies, under similar requirements, to an unmarried surviving spouse or the parent of a veteran that is deceased. Although, whomever is submitting the claim cannot own real estate or personal property that exceeds more than $5,000 if the claimant is single, or $10,000 for a couple that is submitting.

Disabled veterans: can receive a larger exemption. Exactly what that number is depends on income, age, and specifics regarding the disability. BOE website explains as follows – https://www.boe.ca.gov/proptaxes/dv_exemption.htm#Description

Senior Homeowners: over the age of 55 who purchase a new primary residence in any of the 58 counties in California, and sell that residence, can transfer the base-year value to the new primary residence – if the value of that property is equal to, or lesser than, the value of the previous home… Or if it is newly constructed inside of 2-years from the sale of the original home. As the BOE discusses on their site

Family transfers: are usually described in real estate or tax literature as children leaving property to parents, and parents to their children, but we all know 99% of the time it is a parent leaving a home or business property to their children/heirs.

Proposition 19: which was Proposition 58, still allows your surviving parent to leave you their primary residence – thereby  avoiding  property reassessment as long as you’re moving in as your primary residence, with an entire year to settle in.  Upon inheriting property taxes under these requirements, property tax transfer will typically result in the ability to transfer parents property taxes successfully – to keep parents property taxes for as long as the residence is resided in by the inheritor.

Avoiding property reassessment, similar to a Parent to Child Property Tax Transfer, is also possible if you inherit a home from your grandparents – however,  only should both your parents be deceased.  If the difference between the inherited property’s assessed value and current market value is over $1,000,000 upon inheritance and property-transfer, the newly assessed value will be its final current market value, minus $1,000,000.

Disaster relief: In some counties, if your home has been substantially damaged or destroyed by a disaster, you qualify for a reduced assessment.

PART ONE: The History of Property Taxes in California

The History of Property Taxes in California

The History of Property Taxes in California

Property Taxes Before and After World War Two

California no longer depended on property taxes as its’ principal funding source after 1912.  And after 1929, during the depression years, there were massive amounts of unpaid property taxes. In fact, some states excluded certain owner-occupied homes from property taxes altogether. Many taxpayers avoided purchasing tax delinquent homes and properties, and governments in some states enforced limits on property tax rates.

These so-called “homestead exemptions” became rather unpopular with the public at large as they tended to be wealthy homeowners,  with what was perceived as unfair property tax relief, and apparently reduced revenue to local governments that depended largely on property taxes from homes rather than other forms of real property.

During World War Two, state and local taxes were stabilized, or decreased, as spending programs were cut back due to decreased needs, or unavailability of building materials and other resources. This was reversed in the post-war years, after 1945,  as governments expanded social programs and took advantage of rising property value to increase tax collections.  Assessment rose, tax rates rose, and the newspapers ran stories of homeowners forced to sell their house mainly because of rising taxes. No one was keeping a low property tax base from parents when inheriting a home.

Once Germany and Japan surrendered to the Allies in 1945, and World War Two ended… most states replaced the “homestead exemption” with so-called “circuit breakers” which were state financed and clearly benefited blue-collar and middle class homeowners, senior and elderly homeowners, and disabled persons. In many states renters were included by tax measures that actually viewed certain rental payments as property taxes. (By 1991 there were 35 states with some sort of “circuit breaker” exemption in place). 

California Tax Revenue

Property taxes have now created a revenue stream for the state of California that funds changing needs of cities and counties, school systems, and what is referred to as “special districts”.

California’s primary source of state funding is now a combination of sales tax, income tax, excise tax, as well as banking and corporate taxes, and “use tax”, which is a sales tax on purchases made outside one’s state of residence for taxable items that will be used, stored or consumed in one’s state of residence and on which no tax was collected in the state of purchase.

California Property Taxes in the 1960s

During the early 1960s in California there were various scandals involving County Tax Assessors. These particular Property Tax Assessors were caught gifting personal friends and political associates with abnormally low property tax assessments, and unnaturally low tax bills.  Not at all like keeping a low property tax base upon inheriting property from mom or dad in 2021!

The Tax Assessor scandals brought about Assembly Bill 80 in 1966, which imposed standards to hold assessments to market value. The return to market value in the wake of AB 80 could easily represent a mid-double-digit percentage increase in assessment for many homeowners.

A huge number of homeowners in California were impacted with a significant increase in property valuation and tax rates, only to discover that this tax revenue was to be distributed to communities far away from where they resided.

California Property Taxes in the 1970s

This type of activity, distributing tax revenue to distant communities  created a widespread pessimistic attitude among middle class and blue collar homeowners towards the tax system in general, and it’s reportedly biased view towards wealthy, well-connected families.

This viewpoint grew throughout the state until the 1970s, when it morphed into a tidal wave backlash of anger against the existing property tax system. This gave apt. building magnate Howard Jarvis and his Taxpayer’s Association great momentum towards expanding and popularizing property tax relief in all 58 counties in the great state of California.

California’s Famous Tax Revolt That Led to Proposition 13

Within a few years the country was awash with truly emotionalized tax protests, often referred to as “The California Tax Revolt”. Almost every state imposed some sort of limitation on 111 property taxes, coming to a head with the widely promoted Proposition 13 – an amendment to the California constitution, passed by popular vote in California on June 6th, 1978, with nearly 2/3 of Californians voting for Proposition 13, reducing property taxes by 57% – establishing this to be the most effective assault on property taxes in American history.

The Proposition 13 amendment limited property taxes to 1% of full cash value; requiring real property to be valued at its March 1, 1975 value – or on the date it changes hands or is constructed after that date; limiting subsequent value adjustment to 2 % per year or the rate of inflation, whichever is lower.  This prohibited the sales impact or “transaction taxes” on the sale of real estate; and required a 2/3 majority vote in each house of the legislature to increase state taxes;  plus a 2/3 electorate vote to increase or add new local taxes.

Although Proposition 13 was the most well known initiative to limit property taxes, along with transferring property taxes from parent to child on a property tax transfer  from a parent.  Inheriting property taxes can offer a great upside, when an heir is able to keep parents property taxes. And of course have the ability to work with a trust lender when taking advantage of property tax relief from Proposition 13 and Proposition 19 (formerly Prop 58) and it’s flagship tax break, the parent-to-child exclusion, to avoid property tax reassessment and keeping a low property tax base when inheriting a home, as well as being able to buyout property shares from co-beneficiaries, typically siblings, with a  loan to an irrevocable trust.

Proposition 13 and Proposition 19 make it possible to continue keeping a low property tax base when inheriting a home, however they are not the only property tax measures to limit and control property taxes. Some limit tax rates, or property tax maximums. Other tax measures provide specific groups with limited but significant tax breaks; with some property taxes designed to promote various forms of economic development in various urban or rural areas. Interestingly enough, these tax measures included provisions favoring agricultural land, reduced taxation of owner-occupied homes, exemptions that  benefit seniors, or veterans, or the disabled, the elderly, or the poor. 

Economic incentives built into some of these property tax laws included lower rates on particular businesses, exemptions covering people of a certain age, tax breaks in developmental areas, and more….

>> Click Here for Part Two…

 

New Access for Homeowners to CA State Board of Equalization & Property Taxpayers’ Bill of Rights

Due to various changes  right now in California’s property tax relief laws, Proposition 19 is expanding certain tax breaks while limiting others;  creating new issues involving homeowners; often bringing their attorney or trust lender into the mix, for example utilizing Prop 19 and funding to a trust loan; as well as newer tax breaks, verified through direct communication with the California State Board of Equalization (BOE).

CA State Board of Equalization Aiding Homeowners

Right now, as 2021 moves into 2022, if problems with property owners deepen, Taxpayers’ Rights Advocate Lisa Thompson gets involved. The Advocate was appointed by the CA State Board of Equalization Executive Director Brenda Fleming, to work independently of the BOE, to help taxpayers resolve problems that cannot be resolved through conventional channels making sure homeowners understand every avenue designed to help them avoid property tax reassessment as far as property tax breaks are concerned…

It’s important for the Advocate to help homeowners understand how to use the BOE to confirm and use every possible tool at their disposal when transferring property taxes from parent to child is critical in order to keep parents property taxes after a property tax transfer, upon inheriting property taxes from a parent-to-child property tax transfer  –  and understanding how to work with a trust lender to take advantage of a parent-to-child exclusion from current tax rates… Often working in conjunction with Prop 19 and funding to a trust loan, when homeowners (i.e., beneficiaries) buyout inherited property from co-beneficiaries, while keeping a parents low property tax base.

The CA Taxpayers’ Rights Advocate

The Taxpayers’ Rights Advocate is allowed to involve the Morgan Property Taxpayers’ Bill of Rights, which allows the property owner to inspect and copy documents related to their property’s assessment. The Bill of Rights furnishes measures to encourage and verify fair administration of property tax laws in California.

The Advocate reviews how fair and effective the BOE and any given County Assessor is in terms of providing understandable information in printed and Website form to property owners; making sure the BOE  is doing their job properly; resolving complaints, taxpayer problems and general inquiries from the public such as how to use a parent-to-child exclusion, Prop 19 and funding to a trust loan.

The Advocate also looks for underlying causes of conflict between taxpayers and property tax assessors. The Advocate is responsible for creating and distributing a yearly report concerning property tax issues and property tax hikes affecting taxpayers’ rights. To support this, the BOE has public hearings to review this report and related property tax matters, opening up these meetings for questions and opinions from business property owners and homeowners.

The Property Taxpayers’ Bill of Rights provides ways to encourage and verify fair administration of property taxes.  Miss Thompson tells us:

We can help if you have a question regarding your rights or if you have a disagreement with the programs administered by the State Board of Equalization, or county agencies involved in California’s property tax system. Some taxpayers contact us to communicate their frustration with aspects of the property taxation system or seeking confirmation that they have been treated lawfully and fairly by a county or state office…

In cases where the law, policy, or procedure does not allow any change to the staff action, but a change appears justified, the Taxpayers’ Rights Advocate Office is alerted to a potential area that may need clarification or modification. Several past recommendations for policy, procedural, and legislative changes have resulted from these types of contacts with taxpayers…

Our office facilitates communication between taxpayers, the State Board of Equalization, and county staff to eliminate potential misunderstandings. Taxpayers are provided information on policies and procedures so they can be better prepared to discuss their issues with the appropriate staff and increase the opportunity to affect a resolution which will satisfy them.

As you can imagine, Advocate Lisa Thompson bolsters public confidence in the BOE and the office of The Taxpayers’ Rights Advocate.

Lowering or Pausing CA Property Taxes to Combat Effects of the Pandemic

California Property Taxes

California Property Taxes

Removing certain taxes is something the CA Legislature can control to lessen the current financial strain on middle class  Californians. Income taxes and sales tax pose greater political obstacles at the revision stage, and payroll taxes fund Medicare and Social Security to a large extent – therefore California would do well to look carefully at decreasing or putting property taxes on hold, until the pandemic lifts and normalcy has returned to some degree.

The California Legislature proposing tax deferments for a few months will not help the state if thousands of homeowners are about to be foreclosed on and evicted – hence paying no property taxes thereafter; as an example of non-taxation that the government will survive without for a year or two.  Putting property taxes on hold  would not trouble California in any meaningful way.

Certainly, lowering or removing property taxes is a logical solution for property owners who are in trouble all over the state. Insisting on all property taxes being paid no matter what is a poor answer right now, as long as the Covid crisis continues causing shutdowns, mass unemployment, widespread under-employment, and unprecedented health issues.

If pausing property taxes is not a realistic possibility, then the state government would be wise to spend more time and energy educating the public on property tax breaks that are available to them, such as how to still take advantage of Prop 58, as well as Proposition 13 and who, as well as how, folks can make use of Proposition 19. Communications on this to educate the public in California is not nearly as robust as it could be.

Increased, easy to understand information dissemination on Proposition 13 and Proposition 58, as well as Proposition 19 and parent to child property tax transfer on an inherited home.  This would help Californians take more advantage of sibling-to-sibling CA property transfer in conjunction with Prop 19; to become more familiar with parent-child transfer rights – taking advantage of every key property tax break… establishing an exemption from paying  current, property tax rates when inheriting or transferring a primary residence, within a 12-month period.

More residents should be exposed to information about getting a trust loan, to take advantage of a sibling-to-sibling CA property transfer in concert with Proposition 19, to be able to lock in a low Proposition 13 property tax base – buying out siblings’ inherited property tax shares without issues, plus equalizing distribution, in fact for more money than an outside buyer would offer, for heirs that want to sell their inherited property shares.

. All of these decreases would help California to assist residents in spending less on taxes, if not implementing a total hold on property taxes until the pandemic is completely under control and life returns to normal in California, and throughout America as a whole.