If you recently inherited a home or in the process of inherited home, you are likely interested in taking advantage of the California Proposition 19 ability to avoid property tax reassessment. A property that is a candidate for the parent to child exclusion under Proposition 19 will almost always be held in a trust or an estate. If there is only one beneficiary or all of the child beneficiaries are keeping the property together; the process is fairly simple. If there are multiple child beneficiaries and one or more will not be taking the property as part of the distribution; there are some requirements that must be met if you would like to gain a full exclusion from property tax reassessment. The most important requirements are:
The distribution of the assets must be equal for all beneficiaries
The will or trust may not have language prohibiting a non-pro-rata distribution (a non-pro-rate distribution permits the administrator or trustee to divide the assets among the beneficiaries using different assets. A pro-rata distribution means each beneficiary receives their entitled percentage of each asset).
Per the California Board of Equalization, in the event there are not enough liquid assets to make an even distribution, the irrevocable trust or estate may obtain an Equalization Loan from a 3rd party to equalize the distribution. Here is an example of how an equalization loan works. For this example the family home is the only asset of the trust or estate and is valued at $600,000. Let’s assume that there are no liens on the property, there are three child beneficiaries, only one child will keep the property and the other two beneficiaries want cash:
The trust or estate would be valued at $600,000
Each beneficiary would be entitled to $200,000 ($600,000 divided by the 3 children)
The trust or estate would obtain an Equalization Loan in the amount of $400,000 Beneficiary 1 would receive $200,000 in cash Beneficiary 2 would receive $200,000 in cash Beneficiary 3 (Acquiring Beneficiary) would receive a $600,000 property with a $400,000 loan against it or $200,000 in equity ($600,000 minus $400,000)
This is a simplified example but gives you an idea of how the equalization loan works. The actual calculations may be different when factoring in loan costs and other expenses of the trust or estate. Most lenders are unwilling to lend to an irrevocable trust or an estate involved in probate, so you will need to work with a California lender that specializes in it and helping clients qualify for California Proposition 19 and providing Equalization Loans. If you, a family member or a client is in need of a Proposition 19 Equalization Loan to avoid reassessment on an inherited home, we recommend that you contact Commercial Loan Corporation at (877) 464-1066 or visit their website at https://cloanc.com.
California Proposition 19 is a constitutional amendment that is also known by the name “The Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act”. On November 3, 2020, Proposition 19 was approved by California voters. Proposition 19 provides the ability of those who inherit family properties from keeping the low property tax base providing they use the home as their primary residence. Additionally Prop 19 allows for homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster to transfer their assessed value of their primary home to a newly purchased primary residence up to three times.
California Proposition 19 went into effect on 2/16/2021 and replaced Proposition 58 and Proposition 193 by limiting parent-and-child transfer and grandparent-to-grandchild transfer exclusions. Proposition 19 also replaced Proposition 60 and Proposition 90 by expanding senior replacement home transfers which went into effect on 4/1/2021.
If you or a family member is inheriting a home from a parent and are interested in keeping a parents low property tax base and avoid property tax reassessment, you can call (877) 464-1066 for a free benefit analysis.
As you probably know, a trust in California generally reflects a financial instrument, frequently associated with a family estate, usually created with an estate attorney — and if it’s an irrevocable trust, usually with a trust lender involved — where a “trustor” (the person who created the trust agreement) entitled someone with the authority to manage the trust, called a “trustee”… also able to hold title to property or assets for the benefit of any and all beneficiaries to the trust.
Besides the fact that trusts are known to be a financial instrument good for deferring or lowering income taxes and property taxes… a trust often allows a company or a person to own assets that belong to a group of people that would be called beneficiaries, a family that would officially be known as beneficiaries to the trust… or even just one person, that would be known as “the beneficiary to the trust”.
However, frequently much to the chagrin of the beneficiaries – a trust is always managed and controlled by a trustee, which can be a person or a company. Including the distribution of liquid assets, if there are liquid assets, to the beneficiaries. Often a source of contest or dispute between trustee and beneficiary, or beneficiary vs. beneficiary.
Trust Loans for Sibling Beneficiaries
Trust loans are often utilized by sibling beneficiaries who want to minimize property tax reassessment, buying out an inherited home from siblings who are looking to sell off their inherited property – generally to establish and retain sole ownership of an inherited home.
Here is where an irrevocable trust loan often steps in to resolve these differences in objectives with their inherited property shares. The solution involves a fast trust loan to fund a beneficiary property buyout – plus usually works in conjunction with Proposition 19 to help minimize property tax reassessment or completely negate property reassessment – saving inheritors thousands of dollars in the final analysis. Californians need to keep a close eye on these new rules and regs just as they must keep up with new rules for property tax transfers in California.
Moreover, using this property inheritance solution, the sibling beneficiaries selling out their inherited property shares end up, in seven to ten days usually, with at least an extra $14,000 or $15,000 in their pocket, as opposed to selling off their inherited property through a realtor, given the standard 6% property sales commission and other ancillary fees and charges.
It adds up. There’s no free lunch, working with a realtor. No matter how convincing the sales pitch is. It’s certainly worth exploring other options.
If you are in need of a lost to a trust or irrevocable trust, we highly recommend that you call Commercial Loan Corporation at 877-464-1066. The are California’s #1 Trust & Estate lender and can provide you with a free cost benefit analysis on trust loan and parent to child transfer.
Irrevocable Trusts and Parent to Child Property Tax Transfers
Positive Property Tax Relief Changes for California Families
California homeowners over the age of 55 or with severe disabilities (which is still not defined as to what the exact definition of “severe” is) will have the ability to transfer their current property tax assessed value (i.e., “base year value transfer”) of their primary residence to another primary residence anywhere in California.
Therefore, various expanded property tax exclusions have become available to Californians in all 58 counties in the state – to get approved for a base year value transfer. Other new property tax relief breaks in California include tax relief opportunities for homeowners badly impacted by wildfire or other natural disasters.
Of course to take advantage of a parent-child exclusion, inheriting property taxes in California through a property tax transfer with the right to keep parents property taxes basically forever… one has to be inheriting a home used as a primary residence by parents, and must move in within a year also as a primary residence. But that’s hopefully a small price for families to pay to avoid property tax reassessment, to continue inheriting property taxes in California, which otherwise would be financially crippling for most middle class and upper middle class Californians.
How Do CA Families Take Advantage of an Irrevocable Trust?
Simply stated, an irrevocable trust is a trust that features terms and conditions that can’t be revised. This is quite different than a revocable trust, which permits a grantor to revise a trust, and to take property back whenever one wishes.
However, California families can use an irrevocable trust not only to list beneficiaries for a trustee, but also define assets that are to be inherited, by exactly whom, and what the timeline of each inherited asset is to be… Along with the Proposition 58 originated ability to execute a buyout of inherited property from co-beneficiaries looking to sell – to beneficiaries looking to buy them out…
This usually takes place with the help of an experienced trust & estate lender, such as Commercial Loan Corp in Newport Beach, and most likely a law firm experienced in Proposition 19 and property tax relief matters, such as the well respected and well known firm Cunningham Legal in Pasadena – who can also draft an irrevocable trust, and advise a family in naming an appropriate trustee, who is both honest and committed to the trust agreement and it’s benefit to the family being served.
The family-trustee relationship going forward does not always work out in perfect terms, however these are the noted and generally accepted objectives for both family and trustee.
The Family’s Trustee
As you probably already know, a trustee is required to act in the best interest of the trust beneficiaries and implement inheritance distributions to all trust beneficiaries according to the terms of the trust, whether they get along or not… and they often do not. But the trustee must understand that he or she is there to serve the beneficiaries and the trust — not themselves. Many trustees miss that fact, and must be reminded of this repeatedly sometimes, until it sinks in.
All family members work with their trustee to utilize Proposition 19 in concert with an irrevocable trust loan to minimize property reassessment and estate tax, to protect assets from creditors… and to keep under-age or special needs family members far away from legal and/or financial responsibility.
Protecting the Family From Creditors and Tax Hikes
Setting up an irrevocable trust, working with an irrevocable trust lender can help take advantage of the significant estate tax savings this sort of trust provides. An irrevocable trust also furnishes meaningful protection from creditors. As soon as assets and real property transfer to an irrevocable trust, they no longer are property of a grantor – who generally are parents of the grantees, or beneficiaries – and these assets now become legal property of the trustee to hold in safe-keeping to later distribute to the beneficiaries – who are typically family members.
So future creditors can’t place a lien on assets transferred to the trust because those assets no longer belong to the grantor (often the parent or parents). Creditors of beneficiaries generally can’t place a lien against trust assets until those assets are distributed to the beneficiaries, often the grown children of the deceased parents. So these trust protections are certainly worth examining carefully and discussing with your attorney, as are all new rules for property tax transfers in California.
Let’s say you’re inheriting an aging but beautiful home from your parents, with a terrific pool, and fireplaces everywhere… with a wooden deck the family has conducted so many marvelous surf & turf barbecues on – with that brand new grill, with your favorite smoked hickory-flavored charcoal… And plenty of ice-cold drinks.
Just walking around the backyard near the grill brings back wonderful emotional family memories when you and your siblings inherited the entire property from your parents and – as your lawyers referred to it – the property was “transferred” to a new owner – in this case you…. despite the fact that your siblings are determined to sell out their property shares. While you are determined to avoid triggering crippling property tax reassessment! At all costs. So you talk to your family lawyer, and call a reliable trust lender to discuss your ability to transfer property taxes to children… Like the well known Commercial Loan Corp in Newport Beach.
In which case a parent-to-child exclusion is secure, and makes a lot of sense – working with an irrevocable trust loan, in conjunction with Prop 19, which has basically replaced the Proposition 58 parent-child exclusion. And simply requires a careful, but determined, step-by-step process – to reach the desired outcome – to avoid current property reassessment; while buying out property shares inherited by siblings, and nailing down sole ownership of that wonderful old inherited home with all those lovely old dreamy family memories!
How to Avoid Triggering Property Tax Reassessment
It’s terribly important to pay attention to good advice from your attorney, and your trust lender, on mistakes to avoid when transferring a property tax base… In most cases, your inherited property is generally reassessed by your friendly neighborhood CA County Assessors Office; while the new owner pays a higher property tax. The parent-child exclusion was voted into law on Nov 6, 1986… enabling beneficiaries to inherit property from parents, smoothly and quickly – avoiding property tax reassessment and keeping a low property tax base when inheriting a home.
Thankfully, new rules for property tax transfers in California are still giving parents the ability to transfer property taxes to children without any issues – and enables a family/parent oriented beneficiary (usually the favorite child!) to buyout siblings’ share of inherited property and transfer parents’ property taxes through a standard property tax transfer – getting a transfer of property between siblings accomplished without a miserable property tax hike slamming you out of the blue.
Transferring a Family Home to Beneficiaries
As most of us know by now, given the publicity Proposition 19 has received – at the root of all this, it’s simply a matter of inheriting property taxes at a profoundly lower rate from parents… with the ability to transfer smoothly from parent to child, and keep parents property taxes basically forever – for that inherited family home at least. And possibly more, if you have the right lawyer, and the situation merits it.
In other words, as estate and real property attorneys used to put it, “Avoiding property tax reassessment is why people take advantage of exclusions from tax reassessment under Proposition 58 .” And as they phrase it now, “Avoiding property tax reassessment under Proposition 19 property tax exclusions ”. C’est la vie.
Skipping a generation, if property transfer is managed from a grandparent to a grandchild, as long as the the beneficiary’s parent is not alive, inheriting or transferring property will thankfully not increase property taxes.
For a free benefit analysis on transferring a property tax base from a parent to a child on an inherited home, you can complete the following form, in just a few minutes….
Stanley R . Apps – Attorney Turned Avid Tax Relief Advocate
Stanley R. Apps is an employment lawyer in California that provides legal counsel to people in the areas of Education, Civil Rights, Juvenile Defense, and Debt Collection Defense. He represents employees who are wrongfully terminated, subjected to discrimination, or retaliated against by management.
Mr. Apps is seasoned at fighting for rights to fair treatment and fair pay in the work place… He is experienced at handling cases involving Employment Law; Gender and Disability Discrimination, Disability Accommodations, Retaliation against Whistleblowers and those who report Discrimination.
Stanley Apps Esq. filed Ballot Initiative #21-0032 on October 6, 2021 – a property tax initiative that will allow voters to consider significant changes to California tax policy — this time for an expanded tax exemption for single-family homes paid for by higher taxes on high-valued property of all kinds. Also called The Housing Affordability and Tax Cut Act of 2022 – filed as a California ballot proposition, without multi-millionaire politician fanfare and media fanfare.
Mr. Apps, discouraged and frustrated by the deceptive language and disappointing outcomes of CA Proposition 19, put forth this brand new ballot initiative to increase the existing property tax exemption for California homeowners from $7,000 to $200,000. Moreover, increasing non property-owning renters’ income tax credit… while establishing a surcharge on residential properties valued at $4 million or more.
Homeowner Tax Exemptions and State Property Tax Revenue
The full title reads: “Increases Homeowners’ Property Tax Exemption and Renters’ Tax Credit. Increases Taxes on High-value Properties. Limits Local Restrictions on Housing Development. Initiative Constitutional Amendment and Statute”.
If this property tax relief measure can increase part of a homeowner’s property value that’s exempt from property taxes from $7,000 to $200,000 – California homeowners will begin to see light at the end of the tunnel. If even some of this passes, it looks like there will be positive changes in property tax exemptions as well as new rules for property tax transfers in California.
• California residents who are renters will receive an “income tax credit” up to $2,000, adjusted for inflation, as long as their income is not over $400,000 per year.
• Local governments will be reimbursed for any resulting lost revenue with a maximum property tax surcharge of 1.2% – on properties valued over $4 million.
• To pay off an expected $18B in yearly losses, many higher-end properties, valued at $5 million plus, would experience a tax hike — excluding residents of a certain age plus various lower-income properties. However, as per usual, these items remain vague, in terms of specific details and concrete explanation.
• Local residents with “cash flow problems” will supposedly be protected from being denied “lower cost housing” — again, devoid of factual data-points and specific determinations.
Economic Affect
The economic imprint of The Housing Affordability and Tax Cut Act of 2022” on California is expected to be significant. Economists anticipate an increase in property taxes on properties worth $4 million and over; at least $16B to $19B in new tax revenue to the state; plus increased state costs resulting from the increases to the homeowners’ property tax exemption and renters’ tax credit.
Proposition 13 once protected all taxpayers, homeowners and non-homeowners — by maintaining a 2/3 vote requirement in order to pass most tax increases, including state sales and income tax. Intentionally making it more difficult to raise taxes on residents. Particularly critical with respect to property taxes.
Unfortunately for middle class tax payers, a tax measure entitled “Proposition 39” was approved in 2000 by a thin razor edged margin after a massively budgeted PR & marketing campaign was launched by a few Silicon Valley billionaires who thought it would be advantageous to make middle class homeowners pay for their Silicon Valley corporate tax breaks. Similar to our recent tax breaks for mega-wealthy Americans and high-end corporations. Again, mainly pulled from the pockets of middle class homeowners and working families. A sad testament to tax inequality.
So-called “Proposition 39” revised the 2/3 vote requirement for certain bonds to 55% — making it way too easy to pass those bonds, since they are paid back only through increased property taxes. Again, wealthy hands in the pockets of middle class families.
Property Tax Postponement Instead of Property Tax Relief
The State Controller’s Property Tax Postponement Program allows senior or elderly homeowners, blind homeowners, and severely disabled property owners, to take advantage of a marginally helpful “tax deferment” affecting this year’s property tax bill. When the more equitable solution would obviously be total or partial exclusion from these property taxes; especially in the midst of a severe Pandemic — with subsequent economic failings and short-comings, with no real end in sight.
Over the past 44 years, the Howard Jarvis Taxpayers Association has battled and confronted California based special interest organizations, such as the CA Association of Realtors, groups, bureaucrats, and public-employee unions, among others, who benefit from government spending.
Beginning in 1978, Proposition 13 was determined to protect home ownership from overly greedy, destructive taxation. Therefore California property owners strive to continue enjoying the $528 billion that the Proposition 13 and Proposition 58 (now Proposition 19) Howard Jarvis Tax Revolt has saved homeowners by helping them, overall, to avoid property tax reassessment; allowing families to transfer property between siblings without a crippling property tax reassessment, avoiding a sibling to sibling buyout. Enabling beneficiaries to transfer parents property taxes to themselves through property tax transfer relief, when inheriting property, and subsequently inheriting property taxes from a parent — thereby inheriting property while keeping a low property tax base.
Hence, allowing inheritors to keep parents property taxes basically forever… generally with property tax transfer relief from a parent-child transfer — ultimately, through an established parent-to-child exclusion. Something no California homeowner or beneficiary wants to lose.
Establishing and locking in a low property tax base helps you as a new homeowner, or beneficiary inheriting parental property, to minimize your property tax burden over the long-term. As most Californians know, to save on taxes it’s essential to utilize existing property tax relief tools to reduce taxes on inherited real estate… Tools that support property tax transfer and property tax breaks;, the ability to transfer parents property taxes and keep parents property taxes as long as an inherited home remains a primary residence; inheriting property taxes.
Most residents believe expert help is essential, from a property tax consultant, a tax attorney, or a trust lender; and feel it would make very little sense to ignore this.
What we should find in an experienced California trust lender, along with providing a loan to an irrevocable trust, is expertise guiding new homeowners, or beneficiaries inheriting a home, through the inheritance process – able to establish the low property tax base still possible under Proposition 13 – in conjunction with Proposition 19…
Proposition 19 is still clinging to the frayed edges of Proposition 58, as homeowners and renters alike show signs of buyers remorse, all across California, having voted for Proposition 19, thinking that their ability to avoid a property tax reassessment was the key ingredient… amidst confusion over the fine print concerning property tax transfers – hidden behind sentimental window dressing claiming to be tax revenue going mainly to firefighters, the elderly, and folks hindered by wildfires or other natural disasters and disabilities.
Californians are sentimental Westerners by nature, and what Westerners could possibly vote against the elderly and homeowners with severe disabilities!
At any rate, a loan to an irrevocable trust from a trust lender, working in concert with Proposition 19, in conjunction with a parent to child property tax transfer — better known as a parent-child transfer and parent-to-child exclusion, allows heirs and beneficiaries to avoid a property tax reassessment – while also being able to buyout inherited property shares from siblings, for more cash than an outside buyer would offer.
Essential Trust Lender Tasks
Meanwhile, California real estate taxes are maintained at a reasonable level by Proposition 13, which limits real estate tax increases to 2% maximum per year. Proposition 58, Proposition 193, and Proposition 19 allow for this low tax basis to continue if real property is transferred to heirs from a parent or grandparent.
At any rate, a good trust lender should be able to complete the following tasks flawlessly and without issue:
1. Deciding which beneficiary will own the inherited property in question.
2. Determining how much money is needed for an irrevocable trust loan.
3. Funding a high six-figure or low seven-figure trust loan.
4. Distribution of an irrevocable trust loan, equalizing the amount of cash going to each beneficiary that is looking to sell off their inherited property shares.
5. Filing change-of-ownership, while keeping a legacy tax basis.
6. Mapping out how beneficiaries will repay a trust loan.
Finally, a relationship with a trust lender is based on belief, and good faith, as all relationships are. Plus results, which surface soon enough.
California Prop 19 Rules for Transferring Property Taxes
Background and Updated Details on Proposition 19
Proposition 58 – a wildly popular, successful property tax relief measure since 1986, was a life-saver for middle class homeowners and beneficiaries inheriting property taxes from Mom & Dad; from San Jose all the way to San Francisco and beyond – and was abruptly replaced after a rushed, slightly confusing PR campaign; with a tax measure called “Proposition 19” – revising Prop 58’s flagship tax break, the “parent-child exclusion”.
Yet Prop 19, true to it’s advertising, added invaluable property tax exemptions for homeowners age 55 and over, for folks with severe disabilities, and victims of natural disasters and forest fires. Giving qualified homeowners the ability 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.
For heirs inheriting a home from parents, the bottom line objective for families is property tax transfer – a low property tax base of course; avoiding property tax reassessment; and naturally the right to transfer parents property taxes and keep parents property taxes, when inheriting a home and inheriting property taxes from Mom & Dad… Having access to a comfortable stress-free parent-child transfer, and a parent-to-child exclusion from having to pay extremely high current property tax rates. Although nothing is perfect, California’s property tax relief, as it is now, gives a foothold to consumer and homeowner advocates who firmly believe the folks in power should go all the way, to pause CA property taxes to combat Pandemic impact on the local economy.
Promotion of Proposition 19, albeit slightly misleading, said it all in the title – the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act” – more or less replacing the constitutional amendment Proposition 58… However – still maintaining the right to take advantage of a parent-child transfer, inheriting property taxes from Mom & Dad to keep a low property tax base with a parent-to-child exclusion – homeowners are still able to use Proposition 19 in conjunction with a loan to an irrevocable trust, to buyout inherited property shares from beneficiaries, giving inheritors plenty of time, up to 12-months, to move into an inherited primary residence.
Changes to Property Tax Relief Effective 2/16/2021 and 4/1/2021
• Replacing Proposition 58 (est. 1986) and Proposition 193 (est. 1996) – limiting parent-to-child transfers and grandparent-to-grandchild transfer exemptions (Proposition 193).
• Replacing Proposition 60 (est. 1986) and Proposition 90 (est. 1988) that allowed home transfer exemptions for seniors; and Proposition 110 (est. 1990) allowing exemptions for disabled homeowners.
To qualify for property tax relief, residents have to file a claim with their County Tax Assessor by the time stated in the local county ordinance, or inside 12-months from the date of property damage caused by a natural disaster, a flood, earthquake, whatever – whichever is later. The loss estimate has to be at least $10,000 of current or “fair market” value to qualify for this type of property tax relief. Property taxes are reassessed and adjusted according to the level of damage.
Requirements to Qualify for Proposition 19 Approval
1. Proposition 19 permits property tax decreases by allowing families inheriting real estate to avoid property tax reassessment on a family home used as a principle or primary residence.
2. Only one child (heir) after property is transferred, and both parents before property is transferred over, have to be primary residents of inherited property, with plenty of time (12-months) to move in after the transfer.
3. Proposition 19 allows the transfer of a family home or farm between parents and their offspring, or grandparents and grandkids (as long as both parents are deceased) without triggering “change in ownership” based property reassessment – which is a property tax increase everyone wants to avoid.
At least one beneficiary has to reside in a primary residence, upon the purchase or transfer of a family home between parents and their children, in order to qualify for a property tax exclusion.
It’s worth reiterating that in order to qualify, a beneficiary inheriting real estate must be eligible for the “homeowners’ exemption” or “disabled veterans’ exemption“, applied within 12-months of the transfer or purchase. A parent also has to be eligible for homeowners’ exemption or disabled veterans’ exemption within 12-months of transfer or purchase. Using a home as a primary residence. And can still apply even without one of these exemptions by simply proving the home is a primary residence. It is important to point out that there is no requirement for a family farm to contain a home that a beneficiary has to reside in.
The Tax Assessor’s Office has a calculatorto help homeowners estimate their potential property tax savings from a tax exclusion.
“The value limit is equal to the home’s taxable value at time of transfer plus $1 million. Any amount of market value exceeding the limit is added to the taxable value for the transferee. Partial relief is granted under the parent child exclusion up to the value limit; with the remainder assessed at market value.
A $1 million allowance will be adjusted annually beginning in 2023.The principal claimant or the claimant’s spouse who resides with the claimant must be at least 55 years of age at the time the original residence is sold. The claimant must be an owner on record of both the original and replacement residences.
Claims must be filed within three years from the date the replacement residence is purchased or newly constructed to receive full relief. Claims filed after the three-year time period will receive Prospective Relief only. Heirs must complete the claim form and meet the exemptions requirement within the first year following the date of transfer.
The exclusion for transfers between grandparents and grandchildren are the same rules as described above except in order to qualify the parents of the grandchild must be deceased. Special rules apply to multi-unit dwellings and mobile homes.”
It’s well worth noting that all 58 California counties now have adopted, in accordance with Proposition 19 stipulations, an ordinance for disaster relief, available to owners of real property, business equipment and fixtures, orchards or other agricultural groves, and to owners of aircraft, boats, and certain manufactured homes. It is not available to property that is not assessable, such as state licensed manufactured homes or household furnishings.
Looking back at surprising 2020—2021 efforts in California to unravel existing middle class utilized Proposition 13 – commercial and residential property tax relief measures. Propaganda from various critics of property tax relief, and sectors of the realtor community, promoted unrealistic property tax measure Proposition 15 – and the attempted removal of tax breaks allowing exclusion from current tax rates for commercial property and business property owners; including middle as well as upper middle class apt building landlords throughout California. They, and Proposition 15, failed by a surprisingly small margin.
Had Proposition 15 not failed, a property tax hike like Prop 15 would have created a massive statewide increase in prices for all goods and services, all across California, for working families and middle class consumers. In other words, a tidal wave of statewide inflation.
Opponents of property tax relief still refuse to admit that higher taxes on commercial property owners and landlords would have forced all business property owners to raise rents on most merchant store tenants – companies leasing malls… on businesses renting gas stations, super markets, drug stores, liquor stores – a tax hike that would essentially impact all merchants renting space or storefronts, as well as umpteenth landlords with countless residential tenants and office building owners with countless business tenants.
Quite frankly, voters that bothered to read the fine print under this tax measure found the potential affects of Prop 15 to be unimaginable, hence it did not pass. It’s unlikely that Prop 19 would have passed had voters not been confused by the heavy promotion focused on “helping elderly homeowners” and “victims of wildfires” etc… or had voters simply not been lazy, avoiding the complicated fine print concerning inherited homes… it’s quite likely that Proposition 19 may not have been voted into law.
That, in fact, is what Proposition 15 or any commercial property tax hike would accomplish. So critics of property tax relief should take heed! Massive statewide inflation would occur… causing businesses and merchants to struggle with flagging sales, in response to higher prices, and related issues. Business bankruptcies would increase. And layoffs would most likely rise to excessive numbers.
When so much of your profit margin is going up in smoke, in property taxes, you’re not likely to start hiring more workers. In fact, sadly, you’re more likely to lay some people off. Not to mention the companies that would begin leaving the state altogether, moving to nearby states that offer lower property taxes, are more business friendly in terms of taxation overall, certain property taxes, hence you lose workers and in fact increase unemployment and lose tax revenue from all those folks that are not working.
On the other hand, another property tax measure, Proposition 19, was voted into law in California. Looking beyond the obvious fact that this tax measure somewhat limited the former Prop 58 parent-to-child exclusion (from paying current market rates)… the property tax transfer process, in other words the ability to transfer parents property taxes and keep parents property taxes without limitations, when inheriting property taxes, a parent to child property tax transfer… all became more limited in terms of what heirs of parents are actually able to exclude from current tax rates.
Basically, people now more or less have to work a little harder to be able to avoid property tax reassessment; and it unraveled a loophole which made it easy for the next generation to avoid being reassessed at current market value. Not only that, it’s no longer possible to use Proposition 13’s 2% tax cap when purchasing investment properties, often used as vacation rentals to generate some extra cash from tourists.
However, Prop 19 does make it possible for folks that are over age 55, that are residents with homes damaged or destroyed by natural disasters like floods, earthquakes or wildfires, as well as homeowners that are disabled, to receive excellent property tax breaks. Those Californians can keep their residential property basis when shifting to a new primary residence.
A lot of homeowners are encouraged by these changes to property taxation to downsize. However, many residents are looking to do this anyway, especially older middle class residents who tend to have a fixed, modest income from Social Security and/or lower income pensions. And there is always an exclusion from current tax rates to look to, the ever popular parent-to-child exclusion, with a full year to move in, as a primary residence, to inherited property.
