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.

Establishing a Low Property Tax Base in California

Property Taxes in California

Property Taxes in California

Establishing a Low Property Tax Base ~ Who to Turn to in 2022

It’s always interesting, with respect to estate funding and inheritance financing, how different schools of thought come up with different solutions for saving money on property taxes, for out-of-the-box funding solutions against inheritance assets, and for mortgage capitalization. 

Name brand name lenders, setting the tone  for most lenders in California, such as Quicken Loans, e-Loan,  Wells Fargo and Bank of America – are admittedly all high-end, reliable finance-information and lending sources.  Yet – when it comes to important income tax or property tax matters, or inheritance funding solutions – their editors and writers, talented as they may be, still only nibble around the edges on anything but the most conventional, largely ineffective solutions. 

For example, where tax relief is concerned these firms typically dance around the critical issues associated with property tax exemptions, establishing a low property tax base, or avoiding property tax reassessment – when inheriting a home in any of the  58 counties in California. So who do we turn to for help?

Many property owners embrace basics, and enlist assistance from established property tax experts such as Rachelle Lee-Warner, Esq. — well known Partner, Managing Attorney & Trust Administration / property tax relief expert at Cunningham Legal. Or trusted property tax consultant Michael Wyatt, President of Michael Wyatt Consulting in Corona. Or a reliable trust lender like Commercial Loan Corp, led by inspirational CEO, Kerry Smith in Newport Beach – specializing in irrevocable trust loans, avoiding property tax reassessment and establishing a low  property tax base – for middle class California families… guiding them through while showing them all the new advantages that Proposition 19 offers.  Perhaps not as generous as Proposition 58 might have offered… however, lowering property taxes to a greater degree than you might think.

Avoiding Poor Solutions and Time-Wasters 

With regards to lowering property taxes — these are typical solutions from “expert websites” that homeowners might not want to take very seriously, or avoid completely…

  • Limiting your “home improvement” projects;
  • Researching nearby neighborhoods for pricing and home values;
  • Asking uninformed young attorneys or relatives (to save money) if you qualify for tax exemptions;
  • Walking around your neighborhood with your Tax Assessor;
  • Checking your tax bill for inaccuracies;
  • Getting a second, third and fourth opinion from unproven  Assessors and property tax consultants;
  • Meeting with your local Tax Assessor to convince him/her to revise your tax bill;
  • Researching and filing a property tax appeal challenge with your County Tax Assessor without a professional property tax appeal firm – on your own, simply to save money.

Checking for inaccuracies, or getting a second opinion isn’t a bad suggestion.  But walking through your house with your local Tax Assessor?  Researching prices around your neighborhood? With all due respect to the financial websites that hand out this kind of advice, these suggestions would be laughable – if they weren’t so serious.  Limiting your home improvement projects – to lower your property taxes? 

Effective Solutions with a Tax Professional or a Trust Lender

We will never be free from property taxes while we own our own home, but one does need to be on the there are a few simple “tricks” you can use to lower your property tax bill, as certain websites claim. 

We can investigate comparable homes in our neighborhood for “discrepancies”. Never making any changes to our property exterior right before a tax assessment, as this can increase the value of our property; hence increase our property tax bill.

Or, we can stroll around our house and chat with our Tax Assessor during our yearly assessment. That makes a lot of sense. Lastly, we can look for local and state exemptions, and, “if all else fails, write up and file a tax appeal to lower our property tax bill”  so suggests a well known financial site.  Listen, if we’re going to file a property tax appeal with a County Tax Assessor, we’d be a lot better off doing it through a professional property tax appeal firm.

If we want to address this issue seriously, and not simple throw silly and unrealistic suggestions out there simply to see what sticks – we have to look at realistic opportunities to take advantage of. 

For example, if we’re an heir of an estate, or a trust beneficiary inheriting a house from our Mom or Dad – and the house is in an irrevocable trust – a loan to an irrevocable trust from a trust lender is likely required if the trust does not contain sufficient cash to make an equal distribution to all of the co- beneficiaries looking to sell off their inherited property shares. This is frequently taken advantage of by beneficiaries, perhaps like yourself, who intend to keep a home inherited from a parent at the original low property tax base.

A loan to an irrevocable trust makes it possible to buyout inherited property shares from co-beneficiaries and greatly speeds up the trust distribution process. A trust loan also saves a great deal of money when you compare selling the family home through a realtor or broker receiving a 6% commission, plus legal fees, and other closing costs.

Inheriting Parents’ Home While Keeping Their Low Property Tax Base

Bottom line, avoiding property tax reassessment  and establishing a low property tax base by transferring property taxes, are property tax relief benefits available to all property owners in California, protected by Proposition 19 & Proposition 13. This should always be taken full advantage of.  You can transfer parents property taxes when inheriting property and inheriting property taxes – and keep parents property taxes basically forever, establishing a low property tax base with Prop 19 benefits as well as taking advantage of a trust loan buyout of property inherited by siblings. Why not?  It’s your right.  Plus, there is no better time than the present to become better acquainted with the parent to child property tax transfer.

This type of property tax transfer is at the foundation of property tax relief for all Californians, generally through a parent to child property tax transfer on an inherited home – usually referred to as a Prop 19 parent-child transfer or parent-to-child exclusion… all the way to a transfer of property between siblings through a loan to an irrevocable trust, in conjunction with Proposition 19 – with an entire year to settle in to an inherited principle residence, or multiple residence (although only one heir is actually required to lock this tax relief benefit in). As long as the parent leaving that property to heirs resided there as a principle residence as well – which is usually the case anyway.      

Using a Trust Loan to Establish a Low Property Tax Base

Buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base is a popular avenue for many families.  Not only that, if your siblings are receiving funds from an irrevocable trust to sell their inherited property shares, they would receive far less money getting cash from an outside buyer, as opposed to funds from an irrevocable trust. The costs associated with preparing a home for sale, expensive realtor fees, and potential closing costs associated with selling an inherited home can be incredibly expensive.

When a trust loan is used to facilitate a trust distribution, each beneficiary receives an average of an additional $15,000.00 in distribution when compared to selling the home. The person keeping the family home also benefits – saving $6,200+ per year in property tax savings – simply by avoiding property tax reassessment on a nice old inherited home from Mom and/or Dad.

Voters passed CA Proposition 19, just squeaking by with a handful of votes from confused voters in Nov of 2020, and the tax measure became active on April 1, 2021. If you want to intake good advice and avoid mistakes, have property tax experts carefully walk you through Proposition 19, and Proposition 13.

Most middle class and upper middle class California homeowners probably have heard about Proposition 19, the new property tax law that allows seniors and disabled homeowners to keep their current property tax rate when they sell their home and buy a new one. But they may not know how to apply this new law when moving to a new home.

It’s the state’s largest expansion of property tax benefits in decades, basically allowing qualified homeowners to take their Proposition 13 tax base with them anywhere in the state, no matter the price of their new home.

Helping California Middle Class Homeowners Avoid Property Tax Reassessment

Under Prop. 13, tax hikes are capped at 2% a year, meaning the longer you own your home, the lower your property taxes relative to the market value of your home. But some homeowners lose their Proposition 13 tax break when they sell their old home and see their new tax jump to the full market value of their new one.

If you are 55 years or older, a person with a severe disability or a victim of wildfires or natural disasters, you can move to any home in the state, regardless of the home’s price. Your tax is unchanged up to the value of your old home. If your new home costs more than your old one, you pay an additional amount based on the market value over your old home’s price.

When you’re used to a low property tax bill, it can be a shock to your monthly expenses when buying a replacement home includes a huge property tax increase – especially if you have lived in your current home for many years.

Some older middle class homeowners feel trapped because they can’t leave their current home, even if it no longer fits their needs, because they are on a fixed income like Social Security, or a modest pension or military retirement, and can’t afford to move. Taking advantage of Proposition 19 may appear challenging.  But as time passes, more and more tax assessors are providing online links to forms and resources to help homeowners understand how to benefit from these new property tax rules and regulations.

 

Does a Change in Ownership Affect CA Property Taxes?

California Change in Property Ownership

California Change in Property Ownership

Californians who make it their business to know – now understand that triggering property tax reassessment to “a new Base Year Value” as a result of new construction to a home, or a complete change in ownership – which makes it virtually impossible to establish  a low property tax base; and results in a yearly tax rate that increases abruptly to  current or “fair market” rates.

Translation in everyday language – you pay much higher property taxes every year. For example, the different between $600 per year and $9,000 per year. Significantly higher property taxes.

Every County Tax Assessor in California, in all fifty-eight counties, records and reviews every single property deed in every county, to figure out which homes and various other real properties require reappraisal, and which do not. The Tax Assessors also determine ownership changes with other investigative tools such as such as kept records from homeowner self-reporting, or from records of building permits; from newspaper files; or field inspections.

When a County Tax Assessor has determined that a property has changed ownership, Proposition 13 stipulates that the County Tax Assessor must reassess that property to its current (i.e., fair market) tax rate, as per the date of change of ownership.

Because property taxes in California are based on a property’s assessed value – at the time of acquisition – the property taxes will be increased if the current market rate is higher than the original assessed Prop 13 base year value adjustment. Therefore – if the current market tax rate is lesser than the previous adjusted base year value assessment, then taxes on that property will go down. Which is what everyone wants.

It is important to note, however, that a portion of ownership of that property may be reappraised. Let’s say that 50% of a home is transferred under Proposition 13, and the changes that the Tax Assessor is going to reassess is 50% of the home at the current market rate, as per the transfer date, so 50% will be deducted from the base year value, under Proposition 13 property tax relief… 

Typically, when someone buys a home, the home goes through a “change in ownership” and 100% of the home is reassessed at full current market value.   Even if the outcome of transferring real estate is a change in ownership, there are a number of exclusions from paying current tax rates – and so certain homes or other real estate will often not be be reappraised under these sorts of home transfers.

If a property owner files the proper claim, an exclusion from paying updated current property taxes will kick in as long the owner’s property, or portions of this property, are correctly excluded from reassessment.

The best way to cover changes in ownership that are excluded from automatic reassessment, or reassessment by claim; is to enlist the help of a tax attorney, a property tax consultant, or a trust lender who specializes in establishing a low property tax base for heirs upon inheriting a home from a parent.

Frequently, this will assist beneficiaries in buying out inherited property shares from co-beneficiaries through a loan to an irrevocable trust, which realtors and property tax specialists call a transfer of property between siblings or a sibling-to-sibling property transfer – working in conjunction with a California Proposition 19  parent to child property tax transfer on an inherited home – a parent-to-child exclusion (from property tax reassessment at full, current market rates), to establish a low property tax base.  

Naturally, this line of property tax relief, based on a parent’s property  also includes the ability to transfer property taxes when inheriting property taxes from a parent. Under these tax breaks, a property tax transfer like this can help heirs keep parents’ property taxes basically forever, based on a parent-child transfer; or a parent to child exclusion from reassessment – to legally avoid property tax reassessment.

You can always consult your Tax Assessor, however it is generally in the Tax Assessor’s best interest to charge you the maximum amount possible. A property tax consultant or trust lender, on the other hand, is motivated to save you money on taxes, not see you spend more.

Affect of Disaster Relief on CA Property Taxes

Revenue and Taxation rules and regulations in the state of California now stipulates that homeowners and business property owners can claim a property tax exemption if property is destroyed or significantly damaged by a natural disaster such as a winter storm, drought, earthquake, windstorm, flooding or forest fire –  verified by the CA Governor. You may be eligible if you’re the owner of property impacted by any of these natural disasters.

The CA County Assessors Office in your county will appraise your property to determine how severe the damage is if, when it’s re-built in a similar fashion, the affected property has kept its’ previous value in terms of property assessment.  As of 2021,  under Proposition 19, every county in California has an ordinance for disaster relief, making a property tax exemption possible.  As we all know, it used to be only a few counties that allowed this type of exemption or exclusion.

Revised property tax relief is now accessible to owners of real estate, farms, business equipment and fixtures, orchards and  farms or other agricultural entities, as well as aircraft, boat, and certain manufactured home owners. Tax relief is not available to property owners of state licensed manufactured homes, or household furnishings.

The CA State Board of Equalization now tells us, “To qualify for property tax relief, you must file a claim with the county assessor within the time specified in your county ordinance, or 12 months from the date of damage or destruction, whichever is later. The loss estimate must be at least $10,000 of current market value to qualify the property for this relief. The property will be reassessed according to its damaged state and property taxes will be adjusted accordingly.”

After an application is processed by the county assessor’s office, a “Notice of Proposed New Assessment” will be sent to your address. A supplemental refund will be made based on the amount of reduction. The refund will be prorated from the month  in which the disaster occurred to the end of the fiscal year or completion of new construction, whichever is first. You do not have to file a separate claim for a refund, but you do have to pay your standard tax bill.

The form and its title differ from county to county; therefore, you must contact your county assessor for an application for reassessment for property damaged or destroyed by a specific disaster. Some forms can be downloaded off the county’s website.

You can locate find your County Tax Assessor’s contact info through this list of County Assessors: https://www.boe.ca.gov/proptaxes/countycontacts.htm

PART TWO: The History of Property Taxes in California

The History of Property Taxes in California

The History of Property Taxes in California

Socio-Economic Developments Leading Up to Proposition 13

California residents voted Proposition 13 into law (otherwise named “The People’s Initiative to Limit Property Taxation”) as a property tax limitation measure, after years of arbitrary tax hikes, which were viewed by state economists as an unprecedented statewide mass response to limit property taxes that had expanded to degrees that were seen by the citizens of California as unreasonable and spiraling upwards out of control since the 1960s – which was reportedly creating a statewide revenue surplus of five billion dollars.

Many elements brought about Proposition 13. Aging and elderly Californians living on a modest fixed income were experiencing compounding difficulties paying their property taxes… and frequently older homeowners, veterans, retirees and other aging middle class and even upper middle class Californians living on a fixed income were being displaced by foreclosure and sudden eviction, literally with their belongings and furniture on the street!  This certainly brought about greater public interest in property tax relief for homeowners  over 55.  There were also issues arising from population growth in California, and severe inflation during the 1970s, which created a growing demand for homes suitable for starting a family.

Residential properties were reassessed at such high rates that property taxes escalated to such a degree that many retirees could no longer sustain these inflated rates and hold onto the homes they had bought decades before. Naturally, Proposition 13 attracted their votes and protecting older homeowners from property tax hikes, so older Californians would no longer be priced out of their home from egregiously high property taxes, was the image that framed the branding for Proposition 13 in the run up to the Nov 1978 ballot when voters actually had the opportunity to vote property tax relief from Prop 13 into law as an Amendment to the CA Constitution.

Proposition 13: Property Tax Relief Replaces Arbitrary Tax Hikes

Proposition 13 was listed on the ballot through the California ballot initiative process. The Proposition 13 amendment to the CA Constitution, impacting all 58 counties, formally passed on June 6, 1978, with 2/3 of the vote in favor and with the participation of around 2/3 of all registered voters in the state – becoming Article 13-A of the California Constitution.

As Proposition 13 took affect in 1978—1979, California properties were reassessed at current or “fair market” value only when there was a change in ownership or there was completion of brand new construction, referred to as “base year value”.

In addition, Proposition 13 limited annual increases in the base year value of real property to no more than 2% except when property changes ownership or is under construction. Proposition 13 successfully changed a market value-based property tax system to an acquisition value-based system.

Feb 2021: Proposition 13 Morphs into Proposition 19

As the history of present day property tax relief further unfolds, new tax assessment exclusions for inherited property could, in some cases, have a less than positive affect on wealthy homeowners and beneficiaries.

Paul DeLauro, property tax relief specialist and manager of wealth planning at City National Bank, informs us, “Proposition 19 changes several tax rules, but the biggest impact will be on high-net-worth families [impacting heirs inheriting family owned high-end real estate]. Proposition 60, which passed in 1986, allowing property tax relief for homeowners over 55 who wanted to sell their home and move to another house of equal or lesser value in the same county to take their tax assessment with them. The idea was to make it easier for seniors to move without worrying about a huge jump in their property tax bill that might be difficult for them to pay.”

The 1986 Proposition 58 parent to child property tax transfer on an inherited home morphed into Proposition 19, which was, as you probably know, voted into law in Nov of 2020 and adopted other property tax relief benefits such as property tax relief for homeowners over 55, for residents with severe disabilities, and who are victims of natural disasters such as forest fires, floods or earthquakes.

Another property tax relief expert, attorney Bruce M. Macdonald with law firm Carico Macdonald Kil & Benz LLP in El Segundo CA tells us, “If someone over 55 sold a house for $5 million, but they were paying taxes on a lower assessed value based on their original purchase price, they could buy a new house for $2 million and still pay taxes at their original, lower tax assessment”.

Prop 19 Enhanced Certain Benefits While Limiting Others

So while Proposition 19 admittedly limited certain benefits for Californians with respect to avoiding property tax reassessment, especially beneficiaries inheriting a home from a parent, such as property tax transfer, the right to transfer parents property taxes, and the ability to keep parents property taxes after inheriting property taxes from parents with a parent to child property tax transfer; as well as the important and highly popular parent-child exclusion from paying fair market (i.e., current) property tax rates.

However, on the other hand, Prop 19 allowed transfer of property between siblings through a loan to an irrevocable trust, without limitations; and actually expanded property tax relief for homeowners over 55, for residents with severe disabilities, and for victims of natural disasters, as we mentioned a moment ago.

Mr. DeLauro went on to add, “Prop. 19 is highly attractive for eligible homeowners who want to sell their existing primary residence and move to another residence in the state without incurring a higher property tax bill“.

Mr. Macdonald also added, “These new rules allow people to move to any county in the state and not just within their own county. The new house can even be more expensive than the one they sell, and homeowners over 55 can transfer their tax assessments three times in a lifetime.”

Legal Challenges to Proposition 13

After Proposition 13 passed, its constitutionality was challenged. The California Supreme Court upheld the constitutionality of Proposition 13 in Amador Valley Joint Union High School District v. State Board of Equalization on September 22, 1978. Moreover, in 1992 the United States Supreme Court ruled, in Nordlinger v. Hahn, that Proposition 13 did not violate the equal protection clause of the United States Constitution. This ruling more or less effectively ended speculation about whether the judicial system could overturn or revise Proposition 13.

State Board of Equalization and the Taxpayers’ Rights Advocate

The Taxpayers’ Rights Advocate, appointed by the BOE (State Board of Equalization) is responsible for identifying areas of recurring conflict between taxpayers and property tax assessment officials; as well as determining how effective the BOE’s County Tax Assessors are providing materials to property taxpayers as well as dealing with inquiries, complaints, and challenging issues requiring fast resolution.

Lisa Thompson is currently the Taxpayers’ Rights Advocate. Lisa and the Taxpayers’ Rights Advocate Office staff are independent of the agency’s program staff. The Taxpayers’ Rights Advocate Office helps taxpayers who are unable to resolve a problem through normal channels. 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.

The BOE holds public hearings to address the report and related property tax issues. In addition, the Property Taxpayers’ Bill of Rights provides measures designed to promote the fair administration of the property tax.

 

Helpful Contact Info for a Property Tax Transfer on an Inherited Home

Property Tax Transfer in California

Property Tax Transfer in California

Commercial Loan Corp – (877) 756-4454 – cloanc.com

As most property owning Californians are aware in 2021, both time-honored and new cost-cutting property tax breaks are accessible to home owners over age 55, who have a severe disability, or who are verified victims of a natural disaster or forest-fire – as far as new property tax breaks are concerned.

Moreover, when inherited property is in an irrevocable trust and additional cash is required to make fair and equal distribution to all beneficiaries determined to sell their inherited property shares – a trust lender like Commercial Loan Corp is where such beneficiaries go for irrevocable trust funding, along with getting help from the firm to work in conjunction with Proposition 19; to insure inheriting a low property tax base, to avoid property tax reassessment both in the short and long run.

This process also allows beneficiaries looking to keep an inherited home to buyout inherited property from siblings at much higher rates than any outside buyer would offer, given that there is no realtor involved, with their 6% fee; and no pricey legal bills and ancillary costs associated with an outside property sale. It costs beneficiaries less in every respect with a Proposition 19 trust loan from Commercial Loan Corp, then it does if they were to use their own cash to complete the property transfer process, to insure inheriting a low property tax base.

Senior Account Manager – trust loan and property tax relief specialist – Tanis Alonso recently shared her viewpoint on this process with us recently. She explained as follows:

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 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.”

Michael Wyatt Consulting – (951) 264-6152 – michaelwyattconsulting.com

For 25 years well known California property tax specialist Michael Wyatt has managed countless real estate transactions that have had various unintended results. Property owners either did not have the benefit of an estate attorney, or the folks advising them were unfamiliar with property tax relief and assessments, property tax law, tax breaks and their consequences.

Mr. Wyatt started Michael Wyatt Consulting to help advisors and clients avoid unintended consequences, by structuring their real estate for property tax cost savings and avoiding crippling property tax reassessment.

The firm provides services for the decline in value of properties; for base year value transfers for property owners; plus the Transfer of Base Year Value for homeowners age fifty-five or older; as well as severely and permanently disabled residents and Change in Ownership Exclusions.

There also is Interspousal Transfers, Inheriting a Low Property Tax Base; Parent to Child Property Tax Transfer; Family Joint Tenancy and Inter Vivos Revocable/Family Trusts; the Proposition 19 (formerly Prop 58) Parent-to-Child Exclusion and Grandparent-Grandchild Exclusion (Propsition 193); the New Construction Builders’ Exclusion; plus Exempt Property; Eminent Domain & Condemnation –

To be clear, Condemnation is the process a government or private entity uses to legally acquire property. Authorities can condemn properties through eminent domain to seize property from their owners. Eminent Domain allows a property to be seized for public use such as highways, railways, airports, powerlines, and pipelines.

Mr. Wyatt tells us:

Commercial Loan Corporation loans to trusts give our clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America. Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients. Compliance for both commercial and residential property owners is far less strict. Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying interest on their trust loan in advance.

The speed of their trust loans is much faster, typically five to seven days instead of two or three weeks. And if you sold a property outright, without using a trust loan, you have closing costs, legal fees; a commission; etc. It gets very expensive. Going with a firm like Commercial Loan Corp – all costs are offset, unless you plan to keep a property for 2 or 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.”

Cunningham Legal – (949) 386-1340 – www.cunninghamlegal.com

Rachelle Lee-Warner Partner & Managing Attorney for Estate Law and Trust Administration at Cunningham Legal, although a well known Trust and Estate Attorney, also functions to a some degree as a property tax consultant. No matter how many people she helps, Miss Warner never loses sight of the fact that no two cases—or people — are alike; and sums up her role as follows:

I want to be known as an attorney who treats each client like they are my only client. Each situation is unique and each client deserves to be heard and offered the assistance we can provide. I often meet with clients who are in the midst of stressful and emotional situations. Whether it be the declining health or loss of a loved one, my goal is to be a voice of reason, a calm presence, and an encourager through the process. Helping these clients gives me purpose in my career.”

“One of my clients was in hospice care and had an A/B trust with property in the B Trust carrying significant gain since her husband had passed away,” offers Rachelle as an example. “If left intact, her daughters would pay hundreds of thousands in capital gains taxes. I was able to get an ex parte petition filed and granted within two days to eliminate the capital gains taxes for her daughters. My client died a few days later, and her daughters were so grateful we sprung into action to save them money and give their mother peace in her last few days.”

After two pivotal events in my life — becoming a mother and losing a parent — my perspective shifted events helped shape me to understand more clearly the perspective of my clients and my clients’ needs.”

2021 Update: Property Covered or Not Covered by CA Proposition 13

CALIFORNIA PROPOSITION 13

CALIFORNIA PROPOSITION 13

Despite wide coverage afforded by Proposition 13 property tax relief,  in which certain California property tax exemptions substantially reduce the tax burden for many thousands of residents throughout the states’ 58 counties – assessment of some personal property and certain real estate categories in California are not impacted by Proposition 13 property tax relief at all. 

And yet some properties and items are partially exempt from paying  full freight on up-to-date fair market property tax rates, such as historical aircraft; so-called livestock; most burial plots; nonprofit colleges and schools; large vessels and low-cost boats; free libraries; free museums; and art galleries.

Below is a summary of other commonly used, popular Proposition 13 assessments with updated BOE rulings for 2021 forward, along with those items that are not assessed for property tax exemption…

Homeowners’ Exemption
There is a one-time filing with the County Assessor for this exemption. The Homeowners’ Exemption requires a $7,000 reduction of taxable value for owner-occupied principal residence homes. As most Californians know by now, rental properties and vacation properties are not exempt. Moreover, California does reimburse local-agencies for any lost property tax revenue.

Disabled Veterans’ Exemption
Requiring a one-time filing, veterans that are affected by a medically verified disability – or a deceased veteran’s unmarried surviving spouse – have access to a property tax exemption totaling $100,000 for one primary residence. If a veteran has an income not exceeding $40,000 this property tax exemption can be increased to a $150,000 exemption, which requires a formal yearly filing. Naturally, the income limit and exemption dollar amounts are adjusted for inflation every year.

Business Inventory
Sold or leased personal property used for normal business activity is considered to be exempt in California, without any filing requirements, however with the possibility of audits by the County Assessor for verification purposes. This exemption covers business inventory such as standard products for sale or lease, animals used in the production of food, and related supplies of which the cost is added to the consumer retail price. The exemption does not cover property that was in use on the “lien date”, with the exception of animals and normal supplies.

Crops, Trees, and Vines
Crops grown locally are exempt, and filing is not necessary. Date palms under eight years of age are exempt; along with grapevines, which are exempt for the initial first three years; as well as orchard trees, which are exempt for the first four years after the initial season in which they were planted.

Religious Exemption
As many Californians already know, buildings, personal property, and land used exclusively and only for religious purposes are exempt from paying standard current property taxes; requiring yearly formal filing with the County Assessor. With any other use of that property, this religious exemption becomes null and void, and reverts to non-exempt status.

Welfare Exemption
The so-called “welfare exemption” covers real estate that is owned and utilized for religious, hospital, scientific, and/or charitable purposes. The California State Board of Equalization extends a one-time decision on whether or not an organization providing any of these specific services is actually able to take advantage of this sort of exemption – with a yearly revisit from the County Assessor to re-determine if the property is still being utilized for any of these specified purposes and therefore still exempt.

Personal Effects
Exemptions are afforded to household furniture, equipment used for hobbies, and numerous other personal effects that a tax attorney or accountant can verify; without filing. What is not included under Prop 13 are vehicles, airplanes or boats worth over $400. Also not exempt are properties in use for business or a trade of any kind.

Intangible Personal Property
A good deal of what is referred to as “intangible personal property” such as cash, bank accounts, mortgages, and stocks are exempt under Proposition 13; without having to file any documents or forms.

“Low-Value” Property Tax Exemption
Real estate, homes and land, with a base year value and personal property with such a low value that, if not exempt, taxes and assessments on the property would be less than what it would cost to actually assess and collect these taxes. A county board of supervisors have the authority to authorized this type of property tax exemption in California – with a value threshold of $10,000 or under. With one exception – namely, that the $10,000 value threshold is accelerated up to $50,000 for “possessory interests that are for a temporary and transitory use in a publicly owned convention center, cultural facility, or fairground”.

What’s Good for California? Property Tax Revenue… or Property Tax Relief?

Property Taxes in California

Property Taxes in California

2021 forward, those in leadership roles in the state of California really should to get one thing straight. Middle class homeowners, working families, and even upper middle class property owners – which accounts for most of the state, frankly – do not need more property   tax hikes, and they do not need to be reaching deep into their pockets to be sending yet more tax revenue to the state; especially during a virulent pandemic, where middle class property owners are not getting any richer, nor (as the saying goes) are they getting any younger.
 
With so many people still furloughed, reduced to part-time work, or “temporarily” laid off… with more folks than you might think at 100% unemployed status… with a fair amount of companies shrinking their work force, with some even going completely out of business or leaving the state to set up shop in a nearby state where taxes are lower and property less expensive, plus lower overall cost of living. 

Therefore, with survival at the top of most peoples’ list, middle class families in California are not particularly interested in reading about all the billions going into the state coffers as a result of new property tax measures, in editorials and articles in local newspapers…

On the contrary, homeowners are far more interested in saving money through long-term, time tested California property tax breaks – often with information provided by seasoned property tax consultants like Michael Wyatt Consulting in Corona, and attorneys with decades of property tax relief expertise such as Rachelle Lee-Warner, Esq. at Cunningham Legal trust administration, estate-law firm in Auburn; or estate & trust lenders like Commercial Loan Corp in Newport Beach.

These firms help beneficiaries that are inheriting property from a parent save many  thousands of dollars every year by taking advantage of a (formerly Proposition 58) Prop 19 parent-child exclusion – working in conjunction with an irrevocable trust loan, making it possible to avoid property tax reassessment – buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base – buying out co-beneficiaries that are looking to sell off their inherited property shares for substantially more cash than an outside buyer would offer, which is the extra bonus. 

Firms like this will guide families through a Prop 19 parent-child exclusion and property tax transfer when inheriting property taxes, with the ability to transfer parents property taxes and keep parents property taxes through the parent-child transfer.

Every property owner and beneficiary should have reliable access to a firm that can lend money to an irrevocable trust – typically a trust loan lender.  Every  property owner in California should also have access to property tax appeals and property tax reduction, from boutique property tax relief companies. 

When we read local news or editorials, we’re encouraged to think about how wonderful all the extra property tax revenue is for California, and how helpful it is for local firemen and school boards, and how fortunate it is for realtors and well connected companies with special interest construction contracts.  Neither commercial property owners and homeowners don’t have the luxury of thinking about the state government’s terrific success at driving more tax revenue into the coffers from well disguised property tax hikes!

All property owners in California should have locked in rights to keep their yearly property taxes low, and when inheriting a home from parents and inheriting parents’ property taxes — to establish a low property tax base that will last literally forever. This is the most important safety net middle class and even upper middle class residents and beneficiaries have in the state of California… and should be focused specifically on taking advantage  that, not on the states’ fabulous increases in property tax revenue.

Property Tax Relief for All Americans, Not Just California

Property Tax Relief

Property Tax Relief

A recent survey from Ameriprise Financial:

  • Discovered that 65% of Americans have never written and   signed off on a Will;
  • 77% of Americans plan to leave a financial inheritance for their children or grandchildren;
  • 64% of Americans believe they are actually in a position to even leave an inheritance of any kind to their children;
  • only 50% of aging American parents have an estate plan in place reflecting inheritance assets being left to their children.

Some retirees are committed to leaving money and assets to their children; while other parents see it as “a good thing to do”… yet “not essential” as part of their plan for retirement. Not exactly a sign of high interest on the part of parents, is it, where leaving money to their children are concerned!

However, middle class and even upper middle class families in the United States are understandably concerned about cash flow, and the future of their net worth.  Exacerbated by increasing concern over the variant Covid virus issues; which further discourages  parents from leaving anything at all to their children upon passing away… virus or no virus.

These concerns are causing many families in America to believe that all states in America, not just California, should have tax relief laws benefiting middle class, lower middle class and upper middle class consumers, not just tax cuts and property tax breaks for wealthy residents.

Different state economists are looking specifically at property tax relief for their state, as this is one of the simpler areas to affect in this manner to help free up more consumer cash, and thereby improve their overall economy in this fashion, step by step.

Allowing beneficiaries of trusts and heirs of estates to be able to access genuine property tax relief… with the ability to get a loan to an irrevocable trust from a trust lender, when parents leave a home to them as an inheritance.  This enables these folks to keep their family home, inherited from parents, at a low property tax base.

This process also enables beneficiaries to buyout sibling beneficiaries – or as attorneys put it, “the transfer of property between siblings, without a direct sibling-to-sibling transaction” – by lending money to an irrevocable trust – typically from an irrevocable trust loan lender, who can guide your ability to buyout sibling beneficiaries, and show you how you’re putting a lot more cash in siblings’ pockets when you go through a trust loan to buyout sibling beneficiaries. The fact is, we need to know our rights, with respect to these unique tax breaks. 

Homeowners and beneficiaries in all states should know how to buy out beneficiaries’ shares of inherited property; and how sibling-to-sibling property transfer works. Moreover, all Americans should know how loans to irrevocable trusts can help co-beneficiaries get cash while avoiding selling their share of an inherited house – keeping yearly taxes on property at their parents low tax base.

All middle class Americans should be aware of  the California system, of California advantages of inheriting parents property and thus inheriting property taxes that are lower and can remain low. Property tax transfer is an unknown in so many states…whereas  inheriting a parents’ low property tax base, and avoiding property tax reassessment, as well as being able to buyout sibling beneficiaries with a trust loan – should be known to all, and be a normal state of affairs in all states.  It certainly is a “best kept secret” for wealthy families all across America!

Property owners in other states can surely find the time to start the ball rolling to start adopting these property tax relief laws, plus they should be able to see how these types of yearly savings free up cash for many homeowners to be able to purchase a larger home later on.

This would feed more sales activity and cash back into the local economy, with loans to trusts to avoid property tax reassessment, working in concert with new property tax measure that became active in Feb of 2021, California’s Proposition 19 – which used to be the ultra popular Proposition 58, enabling exclusion from current tax rates with a parent to child property tax transfer – along with Proposition 193 for grandparent-to-grandchild exclusion from high fair market rates.

Designing a system like this that has been so successful in California would keep property taxes at a much more equitable system state by state, whereas right now most states do not have a system in place similar to California are not offering middle and lower middle class families a sustainable system within which they can thrive and increase their spending ability.

Californians would then be able to give back more consistently into the general overall economy – inheriting property taxes they can afford, hence being able to maintain inherited property, while helping to increase overall intra-state consumer spending. Creating positive overall financial connectivity, instead of separate declining family spending capabilities, which do not benefit the whole at all.

Economists in many states now believe that within struggling families, if beneficiaries were able to transfer a low property tax base from parents, with an iron clad right to keep parents property taxes as a part of the inheritance process, from parents and grandparents – middle class, upper middle class, and working families would all benefit greatly, and at the end of the day their state would benefit as a whole as well.

If this system were in place in other states, families would be able to free up more cash to spend on goods and services all across their state, thereby benefiting merchants and other consumer businesses, benefiting their families, so they can spend more, moving more cash into the economy, and so on – benefiting each state economy all the way around in every state that shifted in this direction with property tax relief measures designed to help not only individual homeowners and beneficiaries but each state in general.

Saving money on inheritance based property transfers would (as it does in California) allow middle class and upper middle class beneficiaries who do not wish to sell out to keep their parents’ home in the family, which most middle class inheritors otherwise could not afford to do. And yet, unfortunately, California is still the only state that provides a systemic system to help residents avoid property tax reassessment at current, unaffordable rates.

This sort of property tax relief program… capped at 2% taxation, as offered by the 1978 CA Proposition 13 would allows residents in other states to keep parents property taxes, and inherit property taxes at a low property tax base… having the ability to use a Proposition 19 style property tax transfer, with a parent-child transfer or parent-to-child exclusion.

What is Proposition 13?

What is Proposition 13?

What is Proposition 13?

Proposition 13 (i.e., People’s Initiative to Limit Property Taxation) is an amendment to the California Constitution, and was passed by voters in California on June 6, 1978 by close to two-thirds of the voting public. Proposition 13 was designed to decrease property taxes on homes, businesses, and farms by 57% – preventing property tax rates from exceeding 1% of a property’s market value. Property tax reassessment would no longer be able to increase by more than 2% per year, except when a property was sold to a valid buyer.

Boiling Point for the Middle Class & the Elderly

Before the advent of 1978’s Proposition 13, property taxes were notorious in terms of being completely out of control in California, in  all 58 counties. Reports and complaints of, for want of a better term, taxation abuse – were mounting.  Homeowners, especially elderly residents, were losing their homes due to the simple fact that they were unable to pay their rising property taxes. And yet state and local government officials did absolutely nothing to help.

Stories swept across the state like wildfire describing how senior retirees, military veterans, and elderly widows all living on modest fixed incomes were literally being thrown onto the street for late payments; or simply being unable to pay off increasingly high property tax hikes.

By the late 1970s,  property tax burdens were unbearable in the state of California; and just as important – unsustainable for working families, middle class, and even upper middle class homeowners. Obviously, wealthy and ultra wealthy residents could absorb pretty much any tax hike. But that’s merely 1%  or 2% of the entire state.

For elderly middle class folks dependent on fixed incomes, the outcome in the 1970s was frequently a forced sale of their beloved family home – typically the only asset of any real value they owned. And that was what Californians saw month after month, year after year – retirees and middle class working families either selling off their home, their most precious asset, or giving it up to the tax man against their will.

There was even a story circulating around of an elderly woman having a heart attack due to stress while visiting the Los Angeles Tax Assessor’s office, when she couldn’t convince the authorities to take her seriously and lower her tax bill…

Another good example of the state’s inflexible, intractable position on property taxes is a story from the 1920’s concerning a retired couple, as reported in the Newhall Signal newspaper in Newhall, CA. Because this elderly married couple lived in a small home, close to an upscale brand new apartment building, the County Tax Assessor decided to reassess the couple’s tiny house at the highest possible tax rate – as if the land their little home was on would soon boast a massive high-end hotel!  Their small home was taxed at $1,800 per year, regardless of the fact that the retired couple’s total fixed income was $1,900 per year.

Hence, support for Proposition 13 swept the state and filled local newspapers with headlines and reports on this urgent statewide  phenomena. Californians began thinking seriously about what it actually might be like to not be financially crippled  every year by mounting property taxes. 

The Howard Jarvis Taxpayer’s Association Viewpoint

The Howard Jarvis Taxpayer’s Association recently wrote: “The San Francisco Assessor was taking bribes to keep business taxes down below the market value. He went to jail. To make sure the valuations were correct and equal in San Francisco, the new assessor used computers.  When a property sold in a neighborhood,  all the surrounding properties found new tax bills reflecting a new market value, resulting in great increases in taxes for everyone. Property taxes went up so quickly in San Francisco that bumper stickers soon appeared pleading: ‘Bring back the crooked assessor!’

The private sector of the economy fared beautifully in the aftermath of Proposition 13, but some people questioned whether this private sector success might not have come at the expense of the public sector. Opponents of the tax cuts voiced concerns that the tax reductions might have gone too far requiring excessive program cuts. Vital services, they said, would suffer, schools would have to close, and fire and police protection would no longer be adequate. Yet in spite of the precipitous fall of the state’s average tax rate, state and local revenues did not fall proportionately. The total general revenue for local governments fell only 1% in the year following Proposition 13.  By FY 1980 revenue had risen more than 10 % the FY 1978 level. The tax base expanded by more than enough to offset the reduction in tax rates.”

Tax Hikes No More

Basically, Proposition 13 managed to lower property taxes by assessing properties at their 1976 value, while capping annual increases at 2% – not allowing property reassessment of any new base year value – with the exception of the home being sold to a new owner… or on the completion of any new construction on the house. 

As of 1978, to everyone’s relief and delight, all residential and commercial real estate owned by an individual, a family, or a corporation was  impacted by new  Proposition 13 property tax    relief measures such as transferring property taxes in California, namely a parent to child property tax transfer or parent-child exclusion  for all types of property  owners – and protected property tax transfers and the right to transfer parents property taxes  when inheriting property and inheriting property taxes. 

Beneficiaries could keep parents property taxes basically forever, or as long as they resided in their inherited residence as a primary home. This was what everyone had been waiting for, and was desperately hoping for.  With added amendments later on, such as the wildly popular Proposition 58 in 1986, with all sorts of California beneficiaries getting trust loans to buyout property from siblings, while locking in a low Proposition 13 based property tax base.

Another lesser known component to this tax measure, that many families did not even take note of, was an important new step that required a two-thirds majority in both CA Legislative houses to implement any further increases of any state tax rates or revenue charged, which included highly sensitive income tax rates.

A two-thirds majority vote was also imposed on local elections affecting local governments who otherwise,  perhaps on a Friday evening  blitz when no one was looking, would happily increase some sort of special interest tax, before the other party could stop them. A two-thirds majority vote would prevent that from happening going forward.  So Proposition 13 wasn’t just about homeowners getting the right to transfer parents property taxes.

For the first time in the state of California, taxation was capped at a strict 2% rate.  For the first time property tax relief (in practice as opposed to lip service), was accessible for middle class, upper middle class and working families – with its’ foundation built on a “base year value” for property tax reassessment, with enforced limits to state property tax rates and limits to increases through arbitrary property reassessment.

California Base Year Values

CA Proposition 13 locked in three critical restraints for property tax reassessment: (a) All real estate now had non-negotiable iron-clad base year values; (b) restricted rates limited property reassessment to a 2% yearly increase; and (c) a property tax limit of 1% of the assessed value was imposed along with the right to transfer parents property taxes and the parent-child exclusion.

Once Proposition 13 passed, property assessments for 1978-1979 were required to be “rolled back” to 1975-1976 property values, establishing the first base year values in California. Properties that have not sold or undergone new construction since February 1975 are viewed as having a 1975 base year value.

Reliable Property Tax Expectations

Because of Proposition 13, for the first time, certainty in taxation lay in the hands of the taxpayer instead of the tax collector. Proposition 13 set up an acquisition value system that treats all homeowners alike in that they pay 1% of the market value established at the time of purchase; limiting increases to 2% per year – creating a an even playing field for all property owners.