Transferring Low Property Taxes to Heirs & Replacement Homes

California Property Taxes

California Property Taxes

For Californians that are still confused by some of the complicated tax breaks and property tax relief changes, additions and deletions. A high-level summary, boiled down to its’ essential key elements, might help:

Expansion of Property Tax Base Transfers

There have been unexpected limitations to former Proposition 58 tax breaks (now under Proposition 19) such as the parent-child transfer, or parent-to-child exclusion from paying current property tax rates, for beneficiaries inheriting their parents’ home, property tax transfer, the right to transfer parents property taxes and keep parents property taxes, when inheriting property, hence inheriting property taxes, to keep parents property taxes, or the right to buyout  siblings’ share of inherited property with a loan to an irrevocable trust in conjunction with Prop 19.

Some limitations now exist where there were none previously, however these benefits are all still intact as genuine property tax relief for beneficiaries inheriting a home from parents, or homeowners transferring a low property tax base from an old home to a new replacement home.  

Surprisingly progressive property tax relief measures  provided by Proposition 19 allow homeowners who are over 55 years of age, or disabled, or victims of a wildfire or natural disasters such as an earthquake or flood… to transfer the lower assessed property value of their original primary home – to a recently purchased or recently built primary replacement residence. Up to three times (or once per disaster).

And, increased from the previous property tax measure which limited portability only to certain approved counties, ones’ tax base may be transferred to a property located anywhere in the state.  Besides being able to transfer the taxable value of their existing primary residence to a new replacement primary residence of any value, anywhere across all 58 counties in the state of California. The exclusion can be filed up to three times by property owners over age 55, or severely disabled.

However. The opportunity to use a natural disaster such as an earthquake or flood, or wildfire, for the same tax break turns out to be a rather dubious benefit for eligible homeowners.  Because  it’s highly unlikely that one family or single homeowner will be hit by a natural disaster or wildfire more than once, even though severe damage from a forest fire or wildfire could very easily occur, residing in Southern California.

Although, when getting on in years, or being disabled, knowing you can transfer your low property tax base three times is a nice benefit to have in your back pocket, knowing you can use it if you need to. It’s just not a terribly realistic tax break, that’s all.

Prop 19 dramatically changed two property tax measures, administered by County Tax Assessors for years:

a) Parent-Child Transfers & Grandparent-Grandchild Property Transfers, effective February 16, 2021;

b) Senior Citizen and Disaster Relief Tax Base Property Transfers, effective April 1, 2021.

Parent/Child Transfers & Grandparent/Grandchild Transfers

Under Proposition 19,  to inherit a lower property assessment from parent(s) or grandparent(s), these requirements have to be completed:  

a) An inherited Property must be the primary residence of parents or grandparents

b) Inherited property must become the primary residence of the child or grandchild heir inside 12-months

c) Only the principal residence of a parent(s) or grandparent(s) qualifies for a base year value transfer. Other property, residential or commercial no longer qualify for this benefit. This provision applies to transfers starting Feb. 16, 2021

Parent-child transfer & grandparent-grandchild transfer forms

Property Transfer Tax Assessments

Proposition 19 expanded and revised rules for tax assessment transfers in California.  Eligible 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 are persons over 55 years old, persons with severe disabilities, and victims of natural disasters and hazardous waste contamination.  Any homeowner of any age can buyout siblings’ share of inherited property through a trust loan, in conjunction with Proposition19, in California.

New property tax measures allow eligible homeowners to transfer their tax assessments to a home anywhere  in the state and allow tax assessments to be transferred to a more expensive home  bearing in mind an upward adjustment. The number of times that a tax assessment can be transferred increased from one to three times for homeowners age 55 and over, or with severe disabilities.  

These new tax breaks will impact farms as of Feb 16, 2023, the $1,000,000 amount will be adjusted each year at a rate equal to the change in the California House Price Index.

CA Property Tax Revenue

Proposition 19 introduced the California Fire Response Fund and County Revenue Protection Fund. The CA Director of Finance has to add up extra revenue and savings from the new property tax law. The State Controller has to fund the Fire Response Fund with 75% of the determined revenue, with 15% going to the County Revenue Protection Fund.

The County Revenue Protection Fund is supposedly going to be used to reimburse counties for losses in revenue associated with  changes to property taxes. The Fire Response Fund is to be used for full-time fire station staff.

Transfer of Property Tax Base

One other component under Proposition 19 allows homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster, to transfer the lower assessed property value of their primary home to a newly purchased or newly constructed replacement principal residence up to three times (or once per disaster). The tax base may be transferred to a property located anywhere in the state.

A Solution For Common Inheritance Disagreements

A Solution For Common Inheritance Disagreements

A Solution For Common Inheritance Disagreements

Many of us who work with estates, heirs and beneficiaries; supplying members of estates with various financial services, loans or cash advance services mainly — frequently see a large number of estates with family problems, typically surfacing in the form of one or more heirs attempting to get more than their fair share of inherited assets, in any number of various illicit or unethical ways.

We see co-heirs insisting they should be receiving a higher percentage of inherited property, or more from a cash account than was apparently written into the will.  We frequently identify conspiracies within estates experiencing problem like this; often between brothers, to illicitly remove inherited assets from another heir, often a vulnerable, formerly trusting sister, more often than we’d like to see.

We often see siblings hiring their own lawyers to ward off siblings that are attempting to receive a larger amount of inherited assets than their fair share.  A pricey but necessary expense. In short, this is a rarely reported problem of inheritance pilfering that, if successful, can cost victimized beneficiaries or heirs a great deal.

We can assume these situations reflect families that tend to not get along very well, and yet you hear time and time again that these siblings got along very well until a parent passes away and inheritance cash became an issue. 

Beneficiaries waiting for an inheritance often claim they got along well with their siblings until a cash inheritance materialized, and then squabbling began and grew into a genuinely heated conflict; with heirs blatantly attempting to help themselves to inherited assets reportedly belonging to other heirs.

This is where a popular solution to estate problems between siblings is introduced — to simply buyout problematic siblings, for  far more than an ordinary buyer would be likely to offer.  As most of us know by now, this involves a loan to an irrevocable trust from a trust lender; used in concert with Proposition 19, formerly with Proposition 58. 

This often initiated by one heir who wishes to keep their parent’s home in the family, while buying out property shares being inherited by frequently unwanted co-beneficiaries with a large  loan to an irrevocable trust… Heirs looking to keep their parents property generally try to get in under the wire, or seek legal counsel, to take advantage of property tax transfer, their right to transfer parents property taxes, and keep parents property taxes.  Inheriting property taxes through a parent to child property tax transfer child transfer and parent-child exclusion, to avoid property tax reassessment.

This process generally involves a fairly large 6-figure to 7-figure loan to an irrevocable trust, in conjunction with a parent-to-child exclusion (from property tax reassessment at current or fair market rates) – providing enough cash to create an equal trust distribution to all beneficiaries being bought out.

New CA Property Tax Relief Transferring Low Property Tax Values

Transferring A Parents Property Tax Value In California

Transferring A Parents Property Tax Value In California

2022 Tax Relief: Inherited Properties & Replacement Homes

The 2021 CA constitutional amendment, Proposition 19, otherwise known as the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act”, expands a surprising number of tax breaks (with respect to “replacement residence” tax relief benefits) mainly for homeowners over age 55 or suffering from a severe disability… making it possible to transfer a low property tax base from an original home to a new residence, or “replacement home”.

Californians also able to take advantage of expanded property tax breaks are homeowners with a damaged or completely destroyed home, caused by a natural disaster such as a flood, earthquake, or wildfire, can now move to a replacement residence, up to three time – in any of California’s 58 counties, expanded from previous limits of only ten counties allowing the transfer of a low property tax base to a new residence. This is actually quite ironic, as senior and elderly Americans, and folks with disabilities, generally find themselves either ignored or on the short end of the stick, so to speak. So this represents a societal shift, for the better.

However, it is important to point out that Proposition 19 also imposes new limits on property tax benefits for inherited family property, limiting uses of the popular 1986 Proposition 58 “parent-to-child exclusion” from reassessed (i.e., increased) property taxes; limiting parent-to-child transfers of property by narrowing usage in various ways.

This necessitates primary or principal residence (as opposed to owning and renting out investment properties) for both parents and beneficiaries, along with some other, minor, limitations.  On the other hand, beneficiaries do have a full year to move into an inherited primary home, only requiring a minimum of one heir to move in.

Buying Out Siblings & Keeping a Low Property Tax Base

Moreover, beneficiaries still have the ability to keep their parents’ family home, with their parents’ low property tax base, while taking advantage of Prop 19’s parent-to-child exclusion;  always staying focused on inheriting property taxes from parents during a typical  property tax transfer. Avoiding property tax reassessment being a top priority at all times.  For many beneficiaries getting a loan to a trust is critical, generally to buyout problematic co-beneficiaries insisting on selling their inherited property shares.

This typically involves a 6-figure or 7-figure loan to an irrevocable trust from a trust & estate lender, for example like industry leader Commercial Loan Corp, working in conjunction with Proposition 19 – supplying beneficiaries who are selling their inherited property shares with more money than a conventional buyer is likely to offer.

Avoiding a realtor, bypassing their standard 6% commission, and side-stepping the usual legal fees and transaction charges, leaves a good deal more cash, from a trust loan, to equalize beneficiaries selling their share of inherited property.  Basically, a win-win transaction all the way around.

Property Tax Relief Forms

  1. BOE-19-B, Claim for Transfer of Base Year Value to Replacement Primary Residence for Persons at Least Age 55 Years[External PDF]
  2. BOE-19-C, Certification of Value by Assessor for Base Year Value Transfer[External PDF]
  3. BOE-19-D, Claim for Transfer of Base Year Value to Replacement Primary Residence for Severely Disabled Persons[External PDF]
  4. BOE-19-DC, Certificate of Disability[External PDF]
  5. BOE-19-V, Claim for Transfer of Base Year Value to Replacement Primary Residence for Victims of Wildfire or Other Natural Disaster[External PDF]
  6. BOE-60-NR, Notice of Rescission of Claim to Transfer Base Year Value to Replacement Dwelling Under Revenue and Taxation Code Section 69.5 (Propositions 60/90/110)[External PDF]
  7. BOE-502-A Preliminary Change in Ownership Report[External PDF]
  8. BOE-502-AH Change in Ownership Statement[External PDF]
  9. BOE-502-D Change in Ownership Statement Death of Real Property Owner[External PDF]

Base Year Value Transfers for Homeowners 55+ or Disabled

Proposition 60/90 and 110 allowed persons over 55 or severely and permanently disabled persons to transfer the taxable value of their existing home to their new replacement home, so long as the market value of the new home is equal to or less than the existing home’s value and located in one of ten tax relief portability approved counties in California.

That left 48 counties not participating with tax breaks allowing the transfer of a low property tax base from an original home to a new replacement residence. When dealing with damage from a natural disaster like the wildfires California has been contending with lately… Or simply because you’re over the age of 55,  or suffering from a serious physical disability.

Of course the good news is that Proposition 19 now allows eligible homeowners to transfer the taxable value of their existing home to their new replace, and wish to move to a replacement home, or to new residence – of any value, anywhere within the state, up to three times (rather than once, with limited county choices and limited assessed dollar values – as it used to be until 2021).

Age 55+ and Disability Tax Relief Forms

  1. Claim for Transfer of Base Year Value to Replacement Primary Residence for Persons at Least Age 55 Years: BOE 19-D[External PDF]
  2. Claim for Transfer of Base Year Value to Replacement Primary Residence for Severely Disabled Persons: BOE 19V[External PDF]
  3. Certificate of Disability: BOE 19DC[External PDF]

Disaster Relief

Proposition 50 stipulated that a base year value of a home or property that is legitimately destroyed, or damaged beyond the point of residing there, by a disaster or wildfire verified as legitimate by the Governor may be transferred to comparable property within the same county.

Proposition 171 stated that the transfer of the base year value of a principal residence to one of 10 counties that has adopted these tax breaks. However, Proposition 19 now permits homeowners to move to a “replacement home” of higher assessed value than a previous primary residence – and transfer the lower tax base with an adjustment for the value difference when a home is damaged or destroyed by a wildfire or some other natural disaster.

Proposition 19 is covered at California State Board of Equalization  
Natural Disaster and Replacement Residence Form



CA Property Transfer Benefits Expanded by Proposition 19

Prop 19 Property Tax Breaks

Prop 19 Property Tax Breaks

As most of us know by now, yet it does merit repeating – a parent-child exclusion is not the only key tax break offered by Proposition 19.  California homeowners age 55 plus, or  who are victims of a validated natural disaster such as an earthquake or heavy flooding, or who are extremely disabled – who are looking to transfer their property taxes to a new home now have direct access to additional tax relief options. 

Proposition 19 Popular Property Tax Relief Expansion

Some previous tax benefits are now expanded. A transfer by homeowners when purchasing a new, higher priced primary residence, with adjusted numbers to update values, no longer has to be a home of equal or lower value; and a property transfer like this can be implemented up to three times, not merely once as with previous limitations.

Victims of natural disasters verified by the Governor of California no longer have any limits, as far as counties are concerned. There tax breaks can now be used in any of California’s 58 counties, no longer limited to ordinance approved counties as before – and may be utilized between any two counties, from original home to new property.

New Proposition 19 Property Tax Relief Opportunities 

As long as Californians qualify for, and file, their Homeowner’s Exemption or Disabled Veterans’ Exemption inside 12 months of transfer of ownership; plus make an inherited home their principal residence, as opposed to an investment property – they can avoid property tax reassessment.

Moreover, they have plenty of time – 12 months, to move in. Also, family farm transfers are permissible under this exclusion – without having to move in as a primary residence.

However, due to the possibility of triggering reassessment and being hit with current tax rates, it’s critical to enlist the assistance of a trust lender like the Commercial Loan Corp in Newport Beach for instance, to determine if a loan to an irrevocable trust, in conjunction with Proposition 19 tax breaks, will serve as a reliable means to keep an inherited home from parents with a low Proposition 13 protected property tax base. 

There is also a superior financing solution available to buyout siblings who wish to sell their inherited property shares… at a much higher price than an outside buyer would offer, thanks to the elimination of a realtor managing the process, and their 6% fee, plus pricey legal costs; etc.

Keeping a Low Property Tax Base With an Irrevocable Trust

It’s crucial to enlist the help of a tax attorney, or a property tax consultant, or a trust lender, to find an alternative tax avenue –     to avoid egregious tax hikes at current reassessed rates.  For example, a CA family home assessed today at $50,000 – with a yearly property tax of $600 – could actually be re-assessed today at $750,000 – with an annual tax burden of $9,000!

An experienced trust lender can help middle class families with an irrevocable trust, working in conjunction with Proposition 19 and Prop 13, to establish a low property tax base, and even buyout property shares from co-beneficiaries.  We’re talking about homeowners that have on average less than $700 in the bank at any given time; who don’t  have deep pockets… who need to avoid severe property tax increases, with the danger of possibly losing a beloved house due to an inability to pay for such yearly taxes.

Even a regular trust, like a Qualified Personal Residence Trust,  permits  a parent to transfer a primary residence to a trust that allows that residence to be occupied by that parent for a set amount of years. At the close of that set number of years, the residence transfers back to the heir and when that heir becomes the sole owner, they qualify for a parent-to-child exclusion, as a primary home owner.

CA Property Tax Relief Options With Trust Lenders

Besides assisting beneficiaries with a parent-child exclusion and a low parental property tax base, a trust lender will help sibling co-beneficiaries looking to sell inherited property with trust loan funding that will provide them with far more cash than an outside buyer would offer – otherwise known to realtors and attorneys as “buying out a sibling’s share of inherited property” or a “sibling to sibling property transfer” as well as a “transfer of property between siblings”.

A seasoned property tax consultant like Michael Wyatt Consulting or a trust lender specializing In loans to trusts and estates such as Commercial Loan Corp, for example, can help families inheriting real estate in California to fully understand how to safely avoid property tax reassessment, plus how to transfer parents property taxes on a standard Proposition 19 property tax transfer when inheriting property taxes.  Likewise, how to keep parents property taxes basically forever, utilizing a parent-to-child transfer and a parent-child exclusion under Prop 19. Prior to 2021, a parent-child exclusion was strictly under the auspices of the wildly popular Proposition 58.

Again, this is where a trust lender comes in very handy (frequently referred by a property tax consultant or an estate lawyer – to insure that each critical step along the way is taken correctly, keeping a low property tax base; avoiding property reassessment.

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.

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

Understanding New Property Tax Relief Law in California

California Property Tax Transfer Law

California Property Tax Transfer Law

Using Reassessment to Your Advantage

Have you considered that property reassessment can sometimes work in your favor? For example, if property values drop. While we would prefer to see the value of our house increase, at least in a down market as our property value goes down – and so do property taxes. 

We’ll always take the point of view that property taxes should be lower. So if our property value drops, future increases would not be limited to Proposition 13’s popular 2% maximum increase every year. Yet if we transfer the property to someone else and regrettably trigger property reassessment, we can reset the property tax basis and future increases to the lower value.

If we find ourselves in that position with a taxable estate, we can think about transferring our property out of the estate. This will reset the property tax basis to a lower value – potentially reducing estate taxes. It’s certainly worth thinking about. Owning our own home is the classic California dream… The classic American dream. So being able to pass along that investment usually makes a great deal of sense to most of us.

Proposition 19 Replacing Previous Property Tax Benefits

As most Californians know by now, on Nov 3, 2020, CA voters approved Proposition 19 – a constitutional amendment verbosely titled the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act.”

The benefits are relatively simple and straight forward… With Prop 19 more or less replacing and continuing the Proposition 58 parent-to-child exclusion from paying current property tax rates; voted into law in 1986. With the right to keep parents property taxes on a property tax transfer, when inheriting property taxes… taking advantage of an inexpensive property tax transfer, in other words a parent-to-child property tax transfer measure called a parent-child exclusion.  Along with Proposition 193, an amendment passed by voters in 1996, allowing grandparent-to-grandchild transfer exclusions from current property tax reassessment.

Proposition 19 also replaced and continues tax breaks from Proposition 60 (passed in 1986) and Proposition 90 (voted into law in 1988) – both property tax measures enabling home transfers by seniors over age 55 – as well as replacing and continuing Proposition 110 (voted into law in 1990), as a tax measure enabling an exclusion from property reassessment for severely disabled residents.

To be clear, Proposition 19 enables residents to an inexpensive property tax transfer – to inherit family properties and keep a low property tax base on their parent’s home that they are able to move into as their primary residence. This new property tax relief also lets homeowners who are over age 55, extremely disabled, or victims of a wildfire or governor confirmed natural disaster to transfer the assessed value of their primary home to a newly purchased or newly constructed replacement primary residence up to three times in a lifetime.

With Proposition 19 taking over property tax breaks from the wildly popular CA Proposition 58, it bears repeating that the parent-child exclusion and inexpensive property tax transfer can be taken advantage of only when an heir inherits a home from a parent that was using that same property as a primary residence, not a vacation home – with an entire year to comfortably move into that parental home, as a primary residence.

New Property Tax Relief Benefits for Californians

However, homeowners also have the ability to file for a “homeowner’s exemption” as long as the home in question has been the principal residence of the owner as of Jan 1 of that tax year. A new owner will automatically receive an exemption claim form in the mail and there is no cost to file. To receive 100% of this $7,000 exemption a new property owner has to file with the local County Tax Assessor by Feb 15 of that year.

As most Californians know by now, we can’t take advantage of the parent-to-child exclusion if our inherited house is going to be used as a vacation home, rented out to tourists, rather than a primary residence. Fortunately, if the home is inherited by numerous children of a parent, only one heir needs to reside there to take advantage of an – the exclusion.

Moreover, a parent can shelter $1,000,000 of increased value from reassessment. Any appreciation above that will be added to the property tax assessed. In other words, if a primary residence is assessed today at $500,000 however is valued at $1,500,000, an heir inheriting the residence as a primary residence will keep the same property tax assessed value of $500,000. Fortunately for families in the agriculture business, this new limitation also impacts family farms.

These new property tax breaks applied to any transfer of California real estate after Feb 15, 2021, as a gift or an inheritance at death. They also apply to an irrevocable trust (such as a Qualified Personal Residence Trust or a trust created for your benefit by a predeceased spouse) that owns California real property and that will pass to children in the future.

Moreover, it’s fortunate mainly for middle class, upper middle class, and working families that a large loan to an irrevocable trust can still also be used by beneficiaries who wish to keep a parental home they’re inheriting at their parents’ low property tax base, when taking advantage of Proposition 19 (formerly the popular Proposition 58 tax break) to buyout co-beneficiaries, also referred to as buying out sibling property shares – looking to sell their inherited share of the same property, a – typically at a much higher sale price than an outside buyer would offer. The 6% realtor commission, attorney fees, closing costs, cosmetic improvements to please buyers, and other ancillary charges – all disappear when a trust loan from a trust lender furnishes the funding for a sibling buyout.

When you have a reliable trust lender at your side to make buying out sibling co-beneficiaries possible – it pays to keep it in the family.

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.

 

Tax Basis Portability & New CA Property Tax Relief Benefits

Although a parent-child transfer exemption or exclusion, and related CA property tax relief benefits have no age restrictions — tax basis portability is available only to homeowners that are age 55 or older as of their home-sale date.  You are eligible if you are significantly disabled, or your home has been severely decimated or damaged by wildfire or a natural disaster.  Moreover, a replacement residence can be bought before the original home is sold.

Tax Basis Portability and Taxable Value

As of April 1, 2021 homeowners in California can now transfer the “taxable value” of their primary residence to a “replacement primary residence”.  Just as a parent-child transfer exemption is available in all counties; this too can happen anywhere within all 58 counties, in two years or less of the sale of the original property;  without any County restrictions as there were before Proposition 19 came about. This can be done up to 3 times, with no restrictions for homes that have been badly damaged or destroyed by wildfire, for instance the type of forest fire that we have seen lately destroying property throughout the state.

It’s not that complicated.  Say your home has an assessed value of $400,000 and you sell your home for $600,000 – and then purchase a new house for $550,000.  Rather than a new reassessed value of $550,000, you can apply to the Tax Assessor to have the value of your new home reset to the original $400,000 assessed value. This could save you roughly $1,800 every year in property taxes.

“Tax basis portability” in California is a way to lower the assessed value of your house. Hence , in plain English, your property taxes will go down.  Your property tax total for the year is usually a direct reflection of your home’s assessed value. And this impacts the sale price of course, if a home is being sold. When you own and reside in your home as a primary residence, your assessed value goes up at a maximum in California by only 2% every year. With tax basis portability, you can transfer the former assessed value of your home over to your next home.

New California Board of Equalization Clarification

The Board of Equalization has now clarified this question in May of 2021, and stipulated that there is no requirement for a homeowner to be the sole owner of an original primary residence or a replacement primary residence if he or she is age 55 or older, significantly or permanently disabled, or who is a victim of a wildfire.  Hereby adding more  flexibility to tax breaks that existed previously, along with a newly imposed right to take advantage if these particular tax breaks in any county in the state.

This was formerly not possible, and one was limited to a specific number of counties. These older rules limited the location of the properties. Proposition 60 restricted tax basis portability within one county. Proposition 90 expanded that to several counties, allowing you to sell property in one county and purchase property in another, but only if they were on the approved county list.  With the advent  of  Proposition 19, instead of limiting the counties of transfer, you can use this benefit anywhere in California — a major improvement.

Propositions 60 and 90 and 110 Expanded

Proposition 19 grants more freedom over the older Propositions 60, 90, and 110. There are no more county restrictions or sales pricing  restrictions, and people can use the benefit more than once.

Proposition 19 Removes Restrictions on Home Sales Pricing

Under Propositions 60 and 90, only transfers of “equal or lesser value” were eligible for tax basis portability. Proposition 19 allows the transfer of tax basis no matter what the value is. However, there needs to be  specific adjustments to the tax basis should the sale price of the replacement residence be more than the sale price of the previous residence.

Equal or Lesser Value

The tax basis can be transferred as long as the replacement residence is of equal or lesser value. There can even be an inflation index of 105% if purchased inside of 12-months, and 110% if bought  within the second year of the sale of the initial property.

Lower to Higher Value

Under Propositions 60 and 90, if the replacement residence had a higher market value, you weren’t eligible for the benefit. After the advent of Proposition 19 you are still eligible for tax relief.  If you sell your primary residence that is currently assessed at $300,000 for $500,000, and you buy a new house for $600,000 the increase in price of $100,000  also increases the assessed value of the first house…

So the math would look something like this: $300,000 plus $100,000 equals  $400,000 — the new assessed value. Therefore, rather than getting hit with property taxes that are based on $600,000 you pay a tax rate that is based on $400,000.  A significant difference.

Proposition 19 Benefits: Numerous and Expanded Uses 

Proposition 19 now allows up to three tax basis transfers during a lifetime,  even if you have transferred your tax basis in the past; and    for homeowners who have lost their primary residence in a wildfire there are no limitations. Even if you have already used Proposition 60 or Proposition 90 to avoid property tax reassessment it isn’t factored in to the three transfers you’re permitted with Proposition 19. 

Likewise, with Proposition 19, new homeowners or beneficiaries just inheriting a home from a parent  have up to a year to move in to their inherited home as a primary residence and can use a property tax transfer without any issues to avoid property tax reassessment when they transfer parents’ property taxes over to themselves, typically taking advantage of a parent-child transfer exemption — namely a parent-to-child exclusion, now being able to keep parents property taxes basically forever.

Inheriting property taxes under a parent-child transfer exemption and other, newer, rulings — although a little more limited than before — still ends up providing middle class beneficiaries in California with a low parent to child property tax transfer on an inherited home, plus an opportunity to buyout property shares from co-beneficiaries with a 6 or 7-figure trust loan working in concert with  Proposition 19 furnishing siblings with a good deal more buyout cash than any normal outside buyer would offer for the same property with a realtor and a bank involved, plus an inherited home can still remain in the family as a valuable financial and sentimental asset; affording working families lower taxes from genuine property tax relief.

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.”