Rembrandt Peale: The Court of Death. Image by Wikimedia Commons
Taxpayer advocate Susan Shelley shines a light on California’s Proposition 19, which nullifies existing protections for parent–child property transfer, thereby treating a gift of property like a sale. Shelley wonders if many Californians—who voted against one-time estate taxes in 1982—truly want their yearly property tax payments hiked up. From the OC Register.
It was 1986 when the parent-child exclusion from reassessment was first added to the state constitution. A growing number of Californians were angry to discover that state law treated death and inheritance as a “change of ownership” under Prop. 13, triggering reassessment to current market value just as if it was a sale. The legislature proposed a constitutional amendment that would allow parent-child transfers of a home and a limited amount of other property, such as a small business or a rental property, without reassessment.
The parent-child transfer protection passed by a unanimous vote in both houses of the legislature, and then was approved by 75% of voters statewide.
And now, it’s gone.
Proposition 19 took it away. This 2020 ballot measure, advertised heavily for the benefits it would provide to wildfire victims and seniors who wanted to move to a new home, had a surprise in the fine print—the biggest property tax increase in the history of California. Even worse, it’s a tax increase that specifically targets people who have just lost a parent.
Now property that’s transferred from parent to child is reassessed to current market value as of the date of transfer. The new property tax bill is 1% of that current market value, plus all the extra charges for various bonds, fees and parcel taxes.
This is worse than an estate tax, which California voters flatly banned in 1982. An estate tax is owed only once. Property taxes are owed every year as a condition of keeping what you already own.
The letter from the county tax assessor arrives in the mail with the sympathy cards. Even someone who moves into a parent’s home within one year can see a huge tax increase if the property is now worth more than $1 million above its assessed value.
In another unwelcome surprise, a trust offers no protection from reassessment. Assessors “look through” the trust to see the present beneficial owners.
This has been devastating to families that built a small business, bought a small apartment building, or planned to use the income from a rental home to pay the bills for a family member’s long-term care or medical needs. It’s wrecking the plans of parents in every community who have worked to get their families higher on the economic ladder by starting to build generational wealth through real estate. In places where property values have gone up significantly, which is everywhere in California, the annual salaries that people typically can earn are not enough to pay annual property taxes that start at 1% of the market value of a typical home.
This article originally appeared in the Orange County Register. Read the whole thing here.
