With Prop 19, Can we Still Inherit A Home And Retain the Property Tax Base?
In opposition to what some California newspaper editorial writers, ill-informed politicos, or ambitious realtors might tell you, California Proposition 13 is not broken. In fact it’s doing exactly what it’s supposed to be doing. As they say, “If it ain’t broke – don’t fix it!”
Voters in California, in 2020, fell victim to a great deal of deceptive public relations and marketing, painting Proposition 19 as a “friendly” property tax… versus “unfriendly” property tax relief. Always avoiding property tax reassessment was framed as mainly benefiting wealthy families so they could rent out secondary, non-primary, properties to supposedly get even wealthier by renting these properties out – “starving” the state of much-needed revenue for schools, firefighters, and the Legislature in general.
The fact that Proposition 58 and Prop 13 property tax breaks have been allowing middle class homeowners to basically survive, saving Californians from losing their home; or being able to keep inherited property without going broke… apparently was not important to the politicos in the capital.
Avoiding property tax reassessment at high current rates, and enabling beneficiaries to avoid having to sell their inherited property, plus being able to lock down a low Prop 13 property tax base and buyout siblings who urgently needed to sell their inherited property shares, through a trust loan working in concert with Prop 58’s Parent to Child Exclusion or Parent to Child Exemption – didn’t seem to matter at all to the folks running the state. Tax relief like this for the middle class, as opposed to being available only to wealthy Californians, didn’t, and doesn’t, seem to be a priority, interestingly enough.
Opponents to property tax breaks for middle income residents loaded up their promotional advertising with deceptive language and confusing explanations… Avoiding property tax reassessment was characterized as something you shouldn’t want to do; and voters were convinced they were not harming themselves financially, as homeowners, or as trust beneficiaries and heirs to estates; and should be delighted that they were now helping seniors and firemen and schools.
In fact, they were actually helping the Legislature pay for unfunded government pensions with a rather vague financial support system for the firefighter’s union and educational system throughout the state. The benefits were left open as to the “how” and “how much”, and written that way intentionally.
However it worked. Proposition 19 passed… but just barely. If it had been presented clearly, in a straight-forward fashion – it would never have passed. Many people voted for Proposition 19 without realizing its full implications. In fact there is a 160-plus page Assessor’s Handbook “AH401” that has literally been deleted from the Board of Equalization’s website because of changes brought about by Proposition 19; hence California property laws are being rewritten as we speak.
If you look at all this in depth, you can clearly see that if Prop 19, had been allowed to go all the way, in terms of completely stripping out homeowners’ and beneficiaries’ right to be always avoiding property tax reassessment… this would have crippled the middle class in California. And it certainly will present some economic challenges to the middle class… however it stops short at being a complete disaster.
Property owners can still take the right steps for avoiding property tax reassessment, can still buyout co-beneficiaries, can still establish and maintain a low property tax base. With a few limitations. Let’s just say it could have been a lot worse for middle class families. And that is where these critics of property tax relief are probably heading – so Californians have to keep their eyes open. But at least now, as many California homeowners and even renters nurse their buyer’s remorse – they will be prepared if these incessant opponents to property tax relief come back around again to “finish the job”.
A lot of Californians don’t understand how complicated property tax relief is going to be going forward. Every homeowner is going to need a Proposition 13, Proposition 58 and Proposition 193 expert to address these changes – to take full advantage of the Parent to Child Transfer, or Parent to Child Exclusion, and to analyze their property tax situation realistically; with the help of a property tax expert. To see if they are going to have to move into an inherited property within 12-months, and use it only as a primary residence, to evaluate if that’s even going to be possible after the parent leaving them a home passes away.
All these property tax relief matters that were once so simple, that were implemented simply by habit before Proposition 19 came about, are now going to need expert input from well known property tax specialists like Prop 13 / Prop 58 Consultant or trust loan and Parent to Child Transfer experts at a firm like Commercial Loan Corp who fully understand how to make use of the exclusion for reassessment of property taxes on transfers between parents and children.
Professionals like that will be needed to side-step mistakes and not miss out on always avoiding property tax reassessment – ending up paying property taxes at current high rates; hopefully inheriting property taxes form parents.
Beneficiaries and homeowners are going to have to be incredibly careful when looking to transfer parents property taxes, with the goal being to keep parents property taxes on a property tax transfer, using the time honored Parent to Child Transfer, or Parent to Child Exclusion. The same applies to going to a trust lender, for example, to get a loan to an irrevocable trust to be able to get approved for Proposition 58 for the transfer of property between siblings – commonly known as buying out a siblings’ share of house – buying out siblings’ property shares, Or the buyout of co-beneficiaries’ property shares. Now not as simple as it once was. But still do-able, working with the right firm who will lead you in the right direction and evaluate your property correctly.
For instance, without expert assistance it’s very easy to accidentally trigger a property reassessment under Proposition 13 that might very well increase your property taxes 10 or 20 times, for yourself or for your heirs or beneficiaries. It’s so easy to handle a transfer of property incorrectly, without a specialist helping you, meaning a property tax consultant, or trust lender if you want to buyout annoying or dishonest siblings…Or a real estate attorney familiar with Prop 13 and Proposition 58. It is easy to make an error in a Trust that kills your tax cap that would have saved you thousands of dollars. Doing these things on your own is terribly risky.
When Prop 19 does into affect on Feb. 16, 2021, California Prop 19 will change a parent’s ability to leave their children or grandchildren their Proposition 13 protected tax base. Property will be reassessed at its current fair market value, unless you get expert help to identify a work-around or property tax reduction solution. Challenges will exist where there were none before… so finding some experts you can trust will become an essential step going forward.