PROPOSED CHANGES TO CALIFORNIA PROPERTY TAX LAW
- posted: Oct. 07, 2020
Estate Planning Implications of 2020 Propositions 15 and 19
Proposition 15 splits the property tax roll. Proposition 13 now covers to all property in Californa. Proposition 15 would reduce the proposition 13 protection for residential property and farms, and eliminates the property tax protection with certain exceptions for commercial property. Commercial property would be reappraised every three years. Assuming the land value went up then the property taxes would go up every three years.
Proposition 19 Expands this "Eligible Homeowner" exemption and limits the Parent Child-Grandchild inheritance exemption. An “eligible homeowner” is one who is 55 years or older, severely disabled or whose property has been impacted by a natural disaster (such as a forest fire) or contamination. Currently “eligible homeowner” who moves within the same county, or between a very limited number of counties, can keep the same amount of property taxes if their new home is not more expensive than their existing home. This exemption can be usually be used only once during the property owner’s lifetime.
Proposition 19 expands the exemption of an “eligible homeowner” to move anywhere in the state, purchase a more expensive home, and increase the number of times the homeowner can use this exception to three times in their lifetime.
In return it limits the parent child exemption on an inherited residences to $1,000,000.00 and eliminates the exemption for any other types of inherited real property.
If proposition 15 passes it would increase the property tax burden for commercial property owners, and would increase California state revenues. The proponents argue that with the pandemic our state schools and other state institutions need this additional revenue. On the other hand critics argue the last thing California needs during this deep pandemic recession, where small business are struggling to survive, is another tax increase.
Proposition 19 is advertised on TV as giving forest fire victims needed property tax relief. But this is only half the story because it also largely takes away the valuable inheritance exception to the property tax transfer rules for families.
If either one of these propositions pass review your estate plan to determine if it needs to be changed.
HOW PROPOSITION 13 WORKS
Property tax in California is calculated by the taxable value of the property multiplied by the property tax rate. Proposition 13 caps the tax rate is 1 percent and freezes the amount of the increase of the property value for inflation to a limit of 2%. Because in California property values have increased more than 2% per year, over time the taxable value of the property is less that the actual value of the property. When the property is transferred the taxable value of the property is adjusted (reappraised) to the current value which increases the property tax.
Contact an experienced estate attorney
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