As a CA homeowner – how do you ensure, as with a parent-child transfer,  that you’re not paying more property tax than you should?

California homeowners are hit with some of the highest property taxes in America.  So the key question we face every year is – how can we legally decrease our property taxes?  As we all know – although it’s worth a second look due to the various confusing changes imposed as of 2020,  2021 – two most popular systems we can utilize to lessen our property tax burden involve tax breaks, contained in the 1978, 1986 and 2021 property tax measures entitled  Proposition 13, Proposition 58 and Proposition 19.

To clear up some of the most confusing issues associated with Prop 19 which now implements the classic parent-child transfer or parent-child exclusion (to avoid paying current property tax reassessment, or “fair market” rates), we’ll have  to examine the updated key tax breaks associated with this type of property tax relief in California, as confirmed by the CA State Board of Equalization (BOE).

To review what most of us probably already know – if you inherit a home to be used as your primary residence from your parents or from your children, who used the property as a primary residence,  you can successfully avoid property tax reassessment at fair market rates. This special treatment also applies if you acquire the home from your grandparents (avoiding property tax reassessment through the Proposition 193 grandparent-to-grandchild exclusion), but only if both of your parents are deceased.  Naturally these processes include any basic property tax transfer designed to avoid property tax reassessment, to transfer parents property taxes when inheriting property taxes from a dad or a mom, or from grandparents.  The point being to keep parents property taxes at all costs, through a parent-child transfer.

As of February 16, 2021, an inherited home must be used as your primary residence if you wish to avoid property tax reassessment upon it. Additionally, if the difference between the property’s assessed value and fair market value is more than $1,000,000 at the time of transfer, the new assessed value will be the fair market value minus $1,000,000.

Irrevocable Trust Loans & Proposition 19 Property Tax Exclusion

Changes to CA Proposition 58 property tax breaks became active Feb 16, 2021 due to Proposition 19 – trust lenders all across Southern and Northern California are busier than ever, helping Californians who are  inheriting a home from parents, as well as beneficiaries inheriting residential property – establishing a low Proposition 13 property tax base for all inherited property going forward.

On top of all that, beneficiaries who are intent on keeping an inherited home are given, through Proposition 19, formerly Proposition 58, the ability to buyout co-beneficiaries, typically siblings, who are looking to sell their shares in the same inherited property… Only with a lot more cash in hand than a non-family outside buyer would pay for the exact same property.  

In fact, the need for middle class families to establish a low property tax base  for newly inherited property has become so urgent that well known estate & trust lender Commercial Loan Corp in Newport Beach is now offering heirs and beneficiaries inheriting a home from parents a free consultation on parent-child transfer preparation, as well as an estimate of property tax savings overall – to keep their parent’s low property tax base.  This Free Consultation for Property Tax Savings helps evaluate the benefit of a loan to an irrevocable trust, specifically for beneficiaries who want to keep inherited property at their parents’ low property tax rate, with the formerly Prop 58 [now Prop 19] parent-child transfer – to avoid current market reassessment.  This often involves an unusually fast and inexpensive buyout of siblings looking to sell their share of the same inherited home and/or land.

So to reiterate – by originating loans to trusts and estates in probate, a trust lender like Commercial Loan Corp helps to maximize the distribution of funds to a trust or estate; allowing beneficiaries to buyout inherited property from co-beneficiaries, while keeping a low property tax base when inheriting a home.  When providing mortgages to trusts or estates in probate, a good trust lender helps clients  avoid the re-evaluation of property at current tax-rates – enabling families to retain a parent’s low Proposition 13 tax base – by obtaining a parent-child exclusion, with a  parent-child transfer… saving on average $6,200+ per year in property taxes. If you need assistance with a trust loan in order to equalize a trust distribution to qualify for Proposition 19 or Proposition 58, we highly recommend you call Commercial Loan Corp at 877-756-4454. 

The Trust Loan Process From the Inside Out

Tanis Alonso, senior account manager at the Newport Beach trust lending firm, offers an experienced inside viewpoint on the trust loan transaction in conjunction with the Proposition 58 and Prop 19 exclusion from paying high current property tax rates:   

“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 [now Proposition 19] 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. It does sound counter intuitive – yet it’s true…“

A Property Tax  Appeal Can Lower Taxes on Your Home

County property tax assessors in all 58 California counties assess every homeowner’s property tax by multiplying each home’s taxable value by existing applicable tax rates.  The taxable value is typically based on purchase price, generally referred to as “base-year value”.  However, tax authorities do have the right to increase taxation by up to 2% every year in tandem with inflation, plus reassess the tax value of most real properties under certain specific circumstances. 

For example, if a property owner makes changes to his or her property, such as home renovations, or  adding a large swimming pool, or perhaps building an additional wing or modernizing a kitchen or bathroom, whatever – the county tax assessor who gets a copy of that property’s building permits, might possibly reassess, if a decision to do so is made at that time. And this is when discrepancies or errors sometimes occur, when a tax assessor is also able to initiate a separate base-year value on any new renovations or re-constructed areas attached to a home. Mistakes are often associated with these reassessments.   

Therefore, one effective way to lessen your property tax burden is to reduce the assessed value of your home by filing an appeal stating that  the home’s assessed value is less than the value the tax assessor assigned to it.  

The appeal might prove that the home is in much worse condition than the assessor factored into his or her assessment… or perhaps prove that newly constructed changes to the home were not nearly as extensive as the final property tax assessment showed. Tax reduction firms typically handle county tax assessor challenges of this kind, tax appeals, and this is generally the direction most residents go in, in order to submit a successful appeal, in keeping with the CA State Board of Equalization Property Tax Dept.

California State Board of Equalization County Assessor Directory

The BOE publishes a helpful online guide that explains property tax exclusions in detail. For further information about applying an exclusion to your property inheritance, home or living situation, and any required forms you need to complete the deadline for filing these forms, contact your local tax assessor by consulting the BOE county assessor directory.