[From Los Altos Politico. Republished here by permission.]
2020 Prop 19 is a rerun of the 2018 failed Prop 5 that would have extended “property tax portability” for seniors, and other much smaller ‘vulnerable’ groups, from one single move to a ‘willing receiving county’ to – under Prop 19 – a max of 3 moves to any of the counties in California. That’s the “carrot” for homeowning seniors–more moves, to more places.
For example, with 2020 Prop 19 you can sell the $3 million house you live in here in Los Altos, move to San Luis Obispo, buy a swell $3 million place there and pay the same $6,000 a year property taxes you paid here in Los Altos. You don’t get reassessed to $30,000 a year. But there is also a big “stick” for some senior homeowners.
That “stick” in 2020 Prop 19 is a reversal of the 1986 Prop 58 that allows heirs to keep their parents’ and grandparents’ old property tax assessment for first and second residences as well as other property. Prop 19 almost totally crushes the inheritance tax ‘loophole’. Under Prop 19, the heir must occupy the first residence within 2 years in order to enjoy what is typically very little of their elder’s low tax assessment on that home. Any other property – 2nd homes, investment properties, commercial property will be reassessed at full value.
The tax portability of Prop 19 benefits the usual suspect more than other ‘groups’. Source: calbudgetcenter.org
This seemingly progressive think tank, calbudgetcenter.org, doesn’t like Prop 19 because the “tax portability” part – the 3 moves for seniors – gives a tax break to the wealthy and white.
California Realtors Associations, which funded Prop 19 seem to like it because it is likely to increase the number of real estate transactions. Of course, they don’t say that. They say increased revenue will benefit cities, schools, and firemen. Some critics point out that because of former Governor Brown’s changes to how school taxes are apportioned, the wealthiest County School Districts like ours will see little of the new revenue.
Loss of heritability
of the family home is
poorly discussed by media
[URL Links at end in References] Lalahpolitico had to wade into Google search pages 4 and 5 before finding any complete facts about heritability.
Grade:F
Calmatters.org doesn’t admit to any change in the heir tax bill on the primary residence. “They just need to live in it!” See “Proposition 19: Portable property tax break.”
Grade:F
“Who wins and who loses with California property tax measure 19.” LAtimes, Oct. 19, 2020. “With some limitations, children who move into homes inherited from their parents would be able to retain their tax break.” Lalahpolitico, “retain” almost nothing! About a week ago, this article used to have an example that showed that the inheriting children would lose a great deal of the tax break, but the article seems to have been ‘stealth edited’ to remove that bad news.
Grade:B
“2020 Prop 19 would raise property taxes for some, cut them for others. Here are the details. “San Francisco Chronicle. https://apple.news/AG0XZWuomSCy-G8kOoRiBoQ October 10, 2020 Kathleen Pender. “… the primary residence or farm will be reassessed according to a convoluted formula, according to the Legislative Analyst’s Office…” The reporter quotes two different experts who get different answers. Lalah looked up the text of the law to see which account was correct. The reporter gets points for trying to get one straight answer, and she did raise a red warning flag by using the word “convoluted.” Any reader should worry when something in a proposed law is “convoluted”!
Grade: A
Bosinvest.com did the best job. If 2020 Prop 19 passes and is going to be a negative outcome for your family, you have until Feb. 23, 2020 to make any property transfers. Lalahpolitico is not knowledable about this kind of thing. The end of this article has one idea: partial gift transfers. It’s start. “How Prop 19 Could Affect Property Tax exclusion.” Judith Gordon. September 14, 2020. Bosinvest.com.
Los Altos Town Crier (LATC)
Sidesteps 2020 Prop 19
A staff writer was not assigned to take a look at Prop 15 and 2020 Prop 19. Instead, a manager at the LATC publisher’s accounting firm offered an “Other Options” piece.
Los Altos Town Crier Oct. 21, 2020 issue. One can argue that space constraints prevented the author from a better analysis…But the writing clearly implies that if the heir uses the house as their primary residence, then ALL of the parent/grandparent tax basis still carries over. It’s not true.
Grade: F
The LATC “opinion article” says there is a carryover of the tax basis on the primary residence. All the heir has to do is live there. Lalahpolitico: That is so false, for so many cases. How many cases?
The Legislative Analyst’s Office estimates that the repeal of the “intergenerational Transfers protections” guaranteed by the earlier proposition will result in 40,000 to 60,00 families getting hit with higher property taxes every year. – Bakersfield.com
However, the LATC author explains his remarks are “not all-inclusive” [that’s for sure! bordering on lying by omission]. I guess the reader is supposed to guess this firm could help with current taxes and estate planning, if they want to know more about how 2020 Prop 19 could negatively affect their family.
This LATC article leaves the impression there is nothing your family needs to worry about. Because a CPA said so.
Lalahpolitico: Maybe the Town Crier didn’t want to touch the rail of politics here. But cynically, I have to mention that our town has hundreds of hard-working residential realtors, who also do a great deal of advertising in the Los AltosTown Crier. So I get it. Realtors really, really want 2020 Prop 19.
See if you are a 2020 Prop 19 loser in Los Altos area
Are you 55 or over and have a kid or two who might need to live in the Los Altos family home? Have you been living here for a few years or more? Is your current annual property tax bill (excluding the parcel taxes) under $10.000. There is an excel spread sheet Lalah created that you can download and play with.
Lalahpolitico used (TV) taxable values that I thought reflected purchase prices of the typical home Los Altos home purchased in the 70’s and 80’s. Those are $400,000, $500,000,$600,000 and $1,100,00. The spreadsheet can be downloaded and modified to suit your needs.
CURRENT TAXABLE VALUE $400,000
Annual property tax in RHS column. Assessed value at time of home transfer in LHS column
CURRENT TAXABLE VALUE $500,000
Annual property tax in RHS column. Assessed value at time of home transfer in LHS column
If your home is now worth 20 or 30 times what you paid for it, say it’s now worth 3 million or 4 million dollars, the annual tax bill (excluding parcel taxes) for your heir(s) will rise from 4-6 thousand dollars a year to more like 22 to 33 thousand dollars a year. That is 5 times more. I hope your heir(s) work for big tech and are not teachers or social workers!
For plenty of seniors, Prop 19 will increase their heirs’ property taxes on the Los Altos area family home five-fold from around $5,000 to $25,000. You can afford to live in the house, but them, maybe not so much.
Believe it or not some kids raised in the Los Altos area grow up to become modestly paid teachers, social workers, librarians, that is to say, part of the essential workforce. Keeping them in the family home is providing affordable housing. To do so, increases the economic diversity in our area.
CURRENT TAXABLE VALUE $600,000
Annual property tax in RHS column. Assessed value at time of home transfer
CURRENT TAXABLE VALUE $600,000
Annual property tax in RHS column. Assessed value at time of home transfer in LHS column
Analysis – The greater good vs. your self-interest
SINGLE FAMILY HOME RENTAL SUPPLY IN LOS ALTOS?
Self-Interest. Around 10% of the single-family homes in Los Altos are rented. The house Lahla occupies now was purchased as a rental for my mom to live in just a block away from us. When she needed something smaller, it was rented for almost 10 years to different families. Often an older, retired homeowner may move to Reno, but make the Los Altos area house available as a rental; it’s an income source. Or sometimes a parent goes into an assisted living situation and the children put her home on the rental market. Children are incentivized to rent it out rather than sell it right away in order to minimize property, estate and capital gains taxes.
Greater Good. You may think anyone or any family incentivized by self-interest is “bad.” But how else would there be a supply of rental anything within the City Los Altos. Building new rental multi-family apartment buildings has been banned by the City since around the 1980s. Over the years Lahla has encountered families moving into a rental single-family home, often with kids, who are looking for a package deal – housing and good public schooling, so they don’t have to go to private school. Los Altos area residents who are remodeling their homes are looking to rent during construction. Foreigners coming here for a job-related sabbatical are looking to rent. There is a strong demand for a supply of rental single-family homes.
EXPORT THE BOOMERS TO INLAND COUNTIES?
Self-interest. If more boomers take their Los Altos area property tax basis to one of the non-urban counties, then the houses on your block here in the Los Altos area may have more families with kids paying the full assessed value property tax. Yes, they pay as much or more for their property taxes as you now. But they also have imported more children into your school district. The pie seems bigger, but there are more kids to divide it among. Is your family better off?
Greater Good. If 2020 Prop 19 passes, It doesn’t seem fair that the counties where boomers move to will now experience lowered property tax value growth. It may pinch those counties’ government services. Recall that the current law (seniors get one move with current property tax base) originally applied to all of California. There is a reason why now there are only 10 counties willing to let seniors in bringing their property tax base to a new home. The receiving counties figured out they were getting the short end of the stick! [Lalahpolitico: I don’t know if this refusal of counties to accept property tax base transfers could happen again under Prop 19.]
REPEALING THE 1986 PROP 58 IS TOO EXTREME
In 1986 Prop 58 extended Prop 13 by allowing parents-grandparents to transfer a home or farm of any value and other properties cumulative up to $1 million of ASSESSED value (not market value) without reassessment. It passed with almost 76% approval. This meant lots of families with family businesses – say a strip mall owner with a furniture store in it – could pass on the family assets without reassessment and without increased “tax” business expense.
Perhaps now in 2020, this is too rich a deal.
Lalahpolitico: I understand the envy when movie star Jeff Bridges rents out his parent’s Malibu beachfront house for $15,000 a month while paying less than that in annual property tax. And maybe Jeff has 2nd and 3rd homes rented out, apartment buildings perhaps. But then there are the furniture store owning families. Or the property management families. Not to mention the small farm families. What about them?
Lalahpolitico: Yet, I could see tightening this loophole of Prop 58.
Maybe let one home OF ANY VALUE keep its current tax assessment, provided an heir moves in within 10? years. Two years really is too short to move in. Maybe an heir works for a global company and is on assignment for a five-year stint in East Asia.
Tightening the loophole the way 2020 Prop 20 does, or even as Lalah has proposed, would mean the strip-mall/furniture store owning family would probably sell out. That might be a good thing – perhaps a 5 story multifamily apartment could be developed on that land! Or an Ikea. Does that sound like the ‘greater good’? That would be a huge increase in the property tax assessment! FYI school districts in rich counties like Santa Clara County would not get to keep their share of the increase; thanks to former Governor Brown, most of it goes to the districts in poor counties.
LosAltosPolitico Bottom Line
I agree with Calbudgetcenter.org that there is too much inside 2020 Prop 19 as written. And too much that still favors the well-to-do and whites. The inheritance loophole should be tightened, but not as much as in 2020 Prop 19.