Prop 19 CA Inheritance Property Implications

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Topic Author
pc95
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Prop 19 CA Inheritance Property Implications

Post by pc95 »

Prop 19 passed for 2021 throwing a new wrench in property inheritance in CA. Specifically (starting February 2021) children have to live in the inherited house to receive the prop 13 property tax basis exclusion up to under $1million. So in the future if inheriting the house, but if say we wanted to rent out the house, we would incur the fair market value property tax rate - for our house over 6x the current yearly taxes - a total soaking.

Can our parents add (gift) us children on the deed shared to head off this problem prior to February 2021 (when it becomes law) ? There is also the question of capital gains tax exclusion - there are 3 of us children. If we are gifted the house before parents pass (share ownership), are there any additional problems with gifting early?

Thanks.
Bobby206
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Re: Prop 19 CA Inheritance Property Implications

Post by Bobby206 »

pc95 wrote: Tue Nov 17, 2020 4:36 pm Prop 19 passed for 2021 throwing a new wrench in property inheritance in CA. Specifically (starting February 2021) children have to live in the inherited house to receive the prop 13 property tax basis exclusion up to under $1million. So in the future if inheriting the house, but if say we wanted to rent out the house, we would incur the fair market value property tax rate - for our house over 6x the current yearly taxes - a total soaking.

Can our parents add (gift) us children on the deed shared to head off this problem prior to February 2021 (when it becomes law) ? There is also the question of capital gains tax exclusion - there are 3 of us children. If we are gifted the house before parents pass (share ownership), are there any additional problems with gifting early?

Thanks.
I know there are law firms marketing services directly for these type of issues NOW. The problem, as you indicate, is long term property tax savings v. potential cap gains. It's a trade off. I know of attorneys trying to figure out trusts which will be a gift for property tax purposes (before the Feb deadline) BUT have a retained interest for cap gains purposes. Last I checked they had not figured out an answer. Plus, to make matters worse the state has not posted regs and probably won't before February.
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pc95
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Re: Prop 19 CA Inheritance Property Implications

Post by pc95 »

Thanks for the reply Bobby. Luckily (or unluckily maybe) our inheritance is under the FMV $1million exclusion - in the further distance future though, who knows? Any ideas when there are 3 recipients as to if only 1 of the inherited owners must take residence to ward off the huge tax hike?

Adult children in middle up through well-to-do families in the coastal regions are in for an exceedingly unpleasant surprise post-Feb 21, and at least at least a mildly unpleasant one many other places in CA under prop 13.
RetiredAL
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Re: Prop 19 CA Inheritance Property Implications

Post by RetiredAL »

Following ---

The long-time family mountain vacation home will transfer from his Trust to my Trust when when my father passes. The market value to assessed value is between 3x and 4x.
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ray.james
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Re: Prop 19 CA Inheritance Property Implications

Post by ray.james »

pc95 wrote: Tue Nov 17, 2020 4:54 pm
Adult children in middle up through well-to-do families in the coastal regions are in for an exceedingly unpleasant surprise post-Feb 21, and at least at least a mildly unpleasant one many other places in CA under prop 13.
The proposition passed due to support from owners in the coasts.
https://www.kqed.org/news/11846327/how- ... sitions#19

Sadly, one of the side effect is increase in rents. My old rental owner got the condo from her mother(tax basis was 1/10th). So she was never aggressive with raising rent. I also think prop 16 got all the audience and not enough discussion on others this year.
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pc95
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Re: Prop 19 CA Inheritance Property Implications

Post by pc95 »

We are leaning toward protecting against the property tax vice the capital gains - ie going through gifting prior to Feb. Of course there is always the (very) low probability that prices crash down hugely (due to say mass unemployment or something). That doesn't seem too likely with steady population increases and inflationary march-ups.

Some people may not realize how important property taxation affects lifestyle. I love Oregon, but their property taxes are poor comparatively to CA.

The supposed idea is this new tax windfall for the State will help with disaster funds. It might be called a "first-world" problem for the inheritors.
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Re: Prop 19 CA Inheritance Property Implications

Post by Bobby206 »

pc95 wrote: Tue Nov 17, 2020 4:54 pm Thanks for the reply Bobby. Luckily (or unluckily maybe) our inheritance is under the FMV $1million exclusion - in the further distance future though, who knows? Any ideas when there are 3 recipients as to if only 1 of the inherited owners must take residence to ward off the huge tax hike?

Adult children in middle up through well-to-do families in the coastal regions are in for an exceedingly unpleasant surprise post-Feb 21, and at least at least a mildly unpleasant one many other places in CA under prop 13.
A lot of people get a loan at the trust/estate level so that the other two receive cash and the third the house. This has been done for years and I imagine will be even more popular now with the new rules. There are even hard money lenders that specialize in these type of loans. The rules are very specific about the loan money so not something to do willy-nilly. Hire pros! The loans are expensive (points and interest) but worth it in some situations.
Big Dog
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Re: Prop 19 CA Inheritance Property Implications

Post by Big Dog »

pc95 wrote: Tue Nov 17, 2020 4:54 pm Thanks for the reply Bobby. Luckily (or unluckily maybe) our inheritance is under the FMV $1million exclusion - in the further distance future though, who knows? Any ideas when there are 3 recipients as to if only 1 of the inherited owners must take residence to ward off the huge tax hike?

Adult children in middle up through well-to-do families in the coastal regions are in for an exceedingly unpleasant surprise post-Feb 21, and at least at least a mildly unpleasant one many other places in CA under prop 13.
I'm guessing that many/most adult children did not plan to keep their parent's house and turn it into a rental property. Instead, they sell it at the stepped-up basis.
Bobby206
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Re: Prop 19 CA Inheritance Property Implications

Post by Bobby206 »

Big Dog wrote: Tue Nov 17, 2020 5:56 pm
pc95 wrote: Tue Nov 17, 2020 4:54 pm Thanks for the reply Bobby. Luckily (or unluckily maybe) our inheritance is under the FMV $1million exclusion - in the further distance future though, who knows? Any ideas when there are 3 recipients as to if only 1 of the inherited owners must take residence to ward off the huge tax hike?

Adult children in middle up through well-to-do families in the coastal regions are in for an exceedingly unpleasant surprise post-Feb 21, and at least at least a mildly unpleasant one many other places in CA under prop 13.
I'm guessing that many/most adult children did not plan to keep their parent's house and turn it into a rental property. Instead, they sell it at the stepped-up basis.

That is definitely the majority you are right. This law is aimed squarely at the family beach homes along the coast and Lake Tahoe that are worth millions and the kids pay $1,200 a year in property tax v. $35k or $40k they would pay if re-assessed. Not saying it's right or it's wrong or whatever but I believe that's the target or a primary target anyway.
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Re: Prop 19 CA Inheritance Property Implications

Post by DoubleComma »

RetiredAL wrote: Tue Nov 17, 2020 4:56 pm Following ---

The long-time family mountain vacation home will transfer from his Trust to my Trust when when my father passes. The market value to assessed value is between 3x and 4x.
I too am interested in this.

Couldn't one just leave the inherited property in the existing trust (assuming there is a trust) and then just change the Trustee upon death so that you don't ever have to even tell the county the property transferred since the original trust continues to own it.

Wouldn't this work even when someone wants to convert an inherited home to a rental?
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Re: Prop 19 CA Inheritance Property Implications

Post by sergeant »

I feel bad for Jeff Lebowski but I'm sure The Dude will abide.

Most people don't keep their parents home as a rental and I expect most will continue to enjoy the step up basis when they inherit it and then sell it. Prop 19 wasn't just a tax grab. It also allows many of us to transfer our current property tax rate to another home anywhere in the state. We are in the process of looking to relocate and I estimate a property tax savings of about 6k a year due to Prop 19.
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Re: Prop 19 CA Inheritance Property Implications

Post by btenny »

This will dramatically effect coastal cities like Hermosa Beach and Manhattan Beach and many others up and down California. These cities have tons of semi-slum apartments and duplexes and other rental units that are never improved or sold and have huge land values but almost zero tax basis due to inheritance. Similar issues exist for resort cities like South Lake Tahoe where lots of homes are owned by kids and pay taxes like grand parents.

Is this retroactive so kids paying low taxes but not living there get higher taxes based on current values?
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Re: Prop 19 CA Inheritance Property Implications

Post by sailaway »

btenny wrote: Tue Nov 17, 2020 6:17 pm This will dramatically effect coastal cities like Hermosa Beach and Manhattan Beach and many others up and down California. These cities have tons of semi-slum apartments and duplexes and other rental units that are never improved or sold and have huge land values but almost zero tax basis due to inheritance. Similar issues exist for resort cities like South Lake Tahoe where lots of homes are owned by kids and pay taxes like grand parents.

Is this retroactive so kids paying low taxes but not living there get higher taxes based on current values?
Current owners will not be affected, regardless of how they acquired the property.
quantAndHold
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Re: Prop 19 CA Inheritance Property Implications

Post by quantAndHold »

sergeant wrote: Tue Nov 17, 2020 6:12 pm I feel bad for Jeff Lebowski but I'm sure The Dude will abide.

Most people don't keep their parents home as a rental and I expect most will continue to enjoy the step up basis when they inherit it and then sell it. Prop 19 wasn't just a tax grab. It also allows many of us to transfer our current property tax rate to another home anywhere in the state. We are in the process of looking to relocate and I estimate a property tax savings of about 6k a year due to Prop 19.
Pretty much this. About 1/3 of the houses on my block have been owned for multiple generations. About half of those are being lived in by the children or grandchildren, and the other half are rentals, most of which are the worst houses on the block. If the owners decide to continue renting them, I'm sure they'll still make a healthy profit. My hope, though, is that some of the houses will get sold to buyers who will fix them up.

Also, we don't currently want to move, but the fact that we can transfer our property tax basis when we do eventually move gives us options that we didn't really have before.
Yes, I’m really that pedantic.
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pc95
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Re: Prop 19 CA Inheritance Property Implications

Post by pc95 »

[quote=sergeant post_id=5605119 time=1605654759 user_id=4384]
I feel bad for Jeff Lebowski but I'm sure The Dude will abide.

Most people don't keep their parents home as a rental and I expect most will continue to enjoy the step up basis when they inherit it and then sell it. Prop 19 wasn't just a tax grab. It also allows many of us to transfer our current property tax rate to another home anywhere in the state. We are in the process of looking to relocate and I estimate a property tax savings of about 6k a year due to Prop 19.
[/quote]

Its about having the option or not. Our parents have owned the house for 41 years - bought circumstantially and coincidentally just after prop 13 was passed. Talking to my siblings, the house holds additional sentimental value (memories). Keeping the rental option open has its merits since the endre are 3 of us. I recall talking with a coworker in Hawaii who had to take out a new mortgage to pay his brother for half. --- compelled him to continue working for close to another decade.
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sergeant
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Re: Prop 19 CA Inheritance Property Implications

Post by sergeant »

pc95 wrote: Tue Nov 17, 2020 6:30 pm
sergeant wrote: Tue Nov 17, 2020 6:12 pm I feel bad for Jeff Lebowski but I'm sure The Dude will abide.

Most people don't keep their parents home as a rental and I expect most will continue to enjoy the step up basis when they inherit it and then sell it. Prop 19 wasn't just a tax grab. It also allows many of us to transfer our current property tax rate to another home anywhere in the state. We are in the process of looking to relocate and I estimate a property tax savings of about 6k a year due to Prop 19.
Its about having the option or not. Our parents have owned the house for 41 years - bought circumstantially and coincidentally just after prop 13 was passed. Talking to my siblings, the house holds additional sentimental value (memories). Keeping the rental option open has its merits since the endre are 3 of us. I recall talking with a coworker in Hawaii who had to take out a new mortgage to pay his brother for half. --- compelled him to continue working for close to another decade.
You still have the option to keep the home and use it as a rental. It will just require you to charge higher rent or make less profit.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
quantAndHold
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Re: Prop 19 CA Inheritance Property Implications

Post by quantAndHold »

pc95 wrote: Tue Nov 17, 2020 6:30 pm
sergeant wrote: Tue Nov 17, 2020 6:12 pm I feel bad for Jeff Lebowski but I'm sure The Dude will abide.

Most people don't keep their parents home as a rental and I expect most will continue to enjoy the step up basis when they inherit it and then sell it. Prop 19 wasn't just a tax grab. It also allows many of us to transfer our current property tax rate to another home anywhere in the state. We are in the process of looking to relocate and I estimate a property tax savings of about 6k a year due to Prop 19.
Its about having the option or not. Our parents have owned the house for 41 years - bought circumstantially and coincidentally just after prop 13 was passed. Talking to my siblings, the house holds additional sentimental value (memories). Keeping the rental option open has its merits since the endre are 3 of us. I recall talking with a coworker in Hawaii who had to take out a new mortgage to pay his brother for half. --- compelled him to continue working for close to another decade.
Buying out the siblings and paying the property taxes on it are separate things. Depending on the value of the property and number of siblings, your coworker would still have to take out a mortgage to buy out the siblings in California, too. But if coworker was planning on actually living in the house in California, they'd continue to have the low property taxes.
Yes, I’m really that pedantic.
jameskay
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Re: Prop 19 CA Inheritance Property Implications

Post by jameskay »

Make 100% sure you understand the capital gains issue vs the property tax issue before you do anything. Capital gains matters irrespective of whether the house is worth more than $1000000.

Hypothetical scenario:
- House cost basis is $100000
- House is worth $1000000 at the time of inheritance.

Property tax may now be $1500/year.
With Prop 19, if you inherit and keep it and rent it out your property taxes might go up to say $12000 / year.

If you inherit and sell the house at $1000000 you will owe $0 capital gains tax, because "step up" basis happens at time of death (unless someone changes that law).

If you get put on the deed before inheritance, I believe then when you go to sell the house you may NOT get the step up basis (be sure to ask your lawyer). You could owe big $ when you sell the house if this is done wrong, costing you more than the property tax savings.
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pc95
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Re: Prop 19 CA Inheritance Property Implications

Post by pc95 »

[quote=jameskay post_id=5605217 time=1605658575 user_id=163732]
Make 100% sure you understand the capital gains issue vs the property tax issue before you do anything. Capital gains matters irrespective of whether the house is worth more than $1000000.

Hypothetical scenario:
- House cost basis is $100000
- House is worth $1000000 at the time of inheritance.

Property tax may now be $1500/year.
With Prop 19, if you inherit and keep it and rent it out your property taxes might go up to say $12000 / year.

If you inherit and sell the house at $1000000 you will owe $0 capital gains tax, because "step up" basis happens at time of death (unless someone changes that law).

If you get put on the deed before inheritance, I believe then when you go to sell the house you may NOT get the step up basis (be sure to ask your lawyer). You could owe big $ when you sell the house if this is done wrong, costing you more than the property tax savings.
[/quote]

Thanks, this was the sort of response was hoping for....the house is not worth that much (yet), but it could be in the future perhaps. The Capital Gains Exclusion is $250,000 per owner to my knowledge.
the way
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Re: Prop 19 CA Inheritance Property Implications

Post by the way »

This isn't officially law until the Sec of State certifies the election results (Dec 11) but here's a simple overview from the boe https://www.boe.ca.gov/prop19/
palanzo
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Re: Prop 19 CA Inheritance Property Implications

Post by palanzo »

sergeant wrote: Tue Nov 17, 2020 6:40 pm
pc95 wrote: Tue Nov 17, 2020 6:30 pm
sergeant wrote: Tue Nov 17, 2020 6:12 pm I feel bad for Jeff Lebowski but I'm sure The Dude will abide.

Most people don't keep their parents home as a rental and I expect most will continue to enjoy the step up basis when they inherit it and then sell it. Prop 19 wasn't just a tax grab. It also allows many of us to transfer our current property tax rate to another home anywhere in the state. We are in the process of looking to relocate and I estimate a property tax savings of about 6k a year due to Prop 19.
Its about having the option or not. Our parents have owned the house for 41 years - bought circumstantially and coincidentally just after prop 13 was passed. Talking to my siblings, the house holds additional sentimental value (memories). Keeping the rental option open has its merits since the endre are 3 of us. I recall talking with a coworker in Hawaii who had to take out a new mortgage to pay his brother for half. --- compelled him to continue working for close to another decade.
You still have the option to keep the home and use it as a rental. It will just require you to charge higher rent or make less profit.
Or no profit.
quantAndHold
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Re: Prop 19 CA Inheritance Property Implications

Post by quantAndHold »

palanzo wrote: Tue Nov 17, 2020 8:39 pm
sergeant wrote: Tue Nov 17, 2020 6:40 pm
pc95 wrote: Tue Nov 17, 2020 6:30 pm
sergeant wrote: Tue Nov 17, 2020 6:12 pm I feel bad for Jeff Lebowski but I'm sure The Dude will abide.

Most people don't keep their parents home as a rental and I expect most will continue to enjoy the step up basis when they inherit it and then sell it. Prop 19 wasn't just a tax grab. It also allows many of us to transfer our current property tax rate to another home anywhere in the state. We are in the process of looking to relocate and I estimate a property tax savings of about 6k a year due to Prop 19.
Its about having the option or not. Our parents have owned the house for 41 years - bought circumstantially and coincidentally just after prop 13 was passed. Talking to my siblings, the house holds additional sentimental value (memories). Keeping the rental option open has its merits since the endre are 3 of us. I recall talking with a coworker in Hawaii who had to take out a new mortgage to pay his brother for half. --- compelled him to continue working for close to another decade.
You still have the option to keep the home and use it as a rental. It will just require you to charge higher rent or make less profit.
Or no profit.
If you can’t make a profit, there’s always selling it.
Yes, I’m really that pedantic.
goos_news
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Re: Prop 19 CA Inheritance Property Implications

Post by goos_news »

pc95 wrote: Tue Nov 17, 2020 7:36 pm
jameskay wrote: Tue Nov 17, 2020 7:16 pm Make 100% sure you understand the capital gains issue vs the property tax issue before you do anything. Capital gains matters irrespective of whether the house is worth more than $1000000.

Hypothetical scenario:
- House cost basis is $100000
- House is worth $1000000 at the time of inheritance.

Property tax may now be $1500/year.
With Prop 19, if you inherit and keep it and rent it out your property taxes might go up to say $12000 / year.

If you inherit and sell the house at $1000000 you will owe $0 capital gains tax, because "step up" basis happens at time of death (unless someone changes that law).

If you get put on the deed before inheritance, I believe then when you go to sell the house you may NOT get the step up basis (be sure to ask your lawyer). You could owe big $ when you sell the house if this is done wrong, costing you more than the property tax savings.
Thanks, this was the sort of response was hoping for....the house is not worth that much (yet), but it could be in the future perhaps. The Capital Gains Exclusion is $250,000 per owner to my knowledge.

If you move into the house and live in it 2 of the past five years, you can get an exclusion. Other wise, your gifted house will have a near zero tax basis (15,000, most likely, using the gift tax exclusion in the original transfer). There also may be implications if the parents want to continue to live in it, depending on how shared title is handled under the new law. Thus some people use a trust or even a specialized QPRTS -- hence the earlier discussion on how these might get impacted.

I jumped the gun earlier on this in a post that got locked. But it will be interesting to see how this shakes out, and how it impacts the markets.
cacophony
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Re: Prop 19 CA Inheritance Property Implications

Post by cacophony »

Bobby206 wrote: Tue Nov 17, 2020 4:43 pm I know there are law firms marketing services directly for these type of issues NOW. The problem, as you indicate, is long term property tax savings v. potential cap gains. It's a trade off. I know of attorneys trying to figure out trusts which will be a gift for property tax purposes (before the Feb deadline) BUT have a retained interest for cap gains purposes. Last I checked they had not figured out an answer. Plus, to make matters worse the state has not posted regs and probably won't before February.
Can you suggest where one could obtain more info on this potential strategy? I know someone that would really benefit from this...
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pc95
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Re: Prop 19 CA Inheritance Property Implications

Post by pc95 »

[quote=goos_news post_id=5605640 time=1605683617 user_id=149225]
[quote=pc95 post_id=5605251 time=1605659762 user_id=29974]
[quote=jameskay post_id=5605217 time=1605658575 user_id=163732]
Make 100% sure you understand the capital gains issue vs the property tax issue before you do anything. Capital gains matters irrespective of whether the house is worth more than $1000000.

Hypothetical scenario:
- House cost basis is $100000
- House is worth $1000000 at the time of inheritance.

Property tax may now be $1500/year.
With Prop 19, if you inherit and keep it and rent it out your property taxes might go up to say $12000 / year.

If you inherit and sell the house at $1000000 you will owe $0 capital gains tax, because "step up" basis happens at time of death (unless someone changes that law).

If you get put on the deed before inheritance, I believe then when you go to sell the house you may NOT get the step up basis (be sure to ask your lawyer). You could owe big $ when you sell the house if this is done wrong, costing you more than the property tax savings.
[/quote]

Thanks, this was the sort of response was hoping for....the house is not worth that much (yet), but it could be in the future perhaps. The Capital Gains Exclusion is $250,000 per owner to my knowledge.
[/quote]

If you move into the house and live in it 2 of the past five years, you can get an exclusion. Other wise, your gifted house will have a near zero tax basis (15,000, most likely, using the gift tax exclusion in the original transfer). There also may be implications if the parents want to continue to live in it, depending on how shared title is handled under the new law. Thus some people use a trust or even a specialized QPRTS -- hence the earlier discussion on how these might get impacted.

I jumped the gun earlier on this in a post that got locked. But it will be interesting to see how this shakes out, and how it impacts the markets.
[/quote]

Hmm if there are more owners that may mean each must live in the house for 2 of the past 5 years to qualify - that becomes messier.
Tingting1013
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Re: Prop 19 CA Inheritance Property Implications

Post by Tingting1013 »

Pay your taxes
quantAndHold
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Re: Prop 19 CA Inheritance Property Implications

Post by quantAndHold »

Tingting1013 wrote: Wed Nov 18, 2020 11:26 am Pay your taxes
OP is asking a legitimate question about how to legally mitigate the effects of a recent change in the law, that will probably significantly increase the amount of tax they will have to pay on a house they are expecting to inherit. It’s a reasonable question. Nobody, including OP, has suggested they not pay the tax they will eventually owe.

Personally, I think the law has more positives than negatives, one of the positives being that it will force some of the people who currently inherit houses and then become slumlords to sell their property, hopefully to someone who will fix it up and live in it themselves. But to someone in OP’s situation, this change is a very real problem that they need to sort out.
Yes, I’m really that pedantic.
pshonore
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Re: Prop 19 CA Inheritance Property Implications

Post by pshonore »

Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
RetiredAL
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Re: Prop 19 CA Inheritance Property Implications

Post by RetiredAL »

Bay Area News Group article this morning on Prop 19 impacts.

https://www.mercurynews.com/2020/11/18/ ... your-home/
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LilyFleur
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Re: Prop 19 CA Inheritance Property Implications

Post by LilyFleur »

pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
My property taxes would double. I'm single and retired and on a fixed income. Not good.

I've been a California homeowner since 1983.
RetiredAL
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Re: Prop 19 CA Inheritance Property Implications

Post by RetiredAL »

LilyFleur wrote: Wed Nov 18, 2020 1:42 pm
pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
My property taxes would double. I'm single and retired and on a fixed income. Not good.

I've been a California homeowner since 1983.
And this is EXACTLY why Prop 13 came along. When Prop 13 was passed, housing prices in the Bay Area were climbing 2-3% per month, royally hurting those on fixed incomes. Plus there was no reason for local govt/agencies to manage their expenses, the had a gold mine of money coming in.

I've owned in this house since 1975.
quantAndHold
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Re: Prop 19 CA Inheritance Property Implications

Post by quantAndHold »

pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
First time homebuyers are paying 1-1.25% of the sale price, which isn’t exactly high, especially when compared with other states.

My taxes would quadruple. My neighbor on the corner, who bought his place 50 years ago, would pay 10x. Most of my neighbors who are currently retired would pay a number somewhere between 4x and 10x of what they pay now.
Yes, I’m really that pedantic.
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Re: Prop 19 CA Inheritance Property Implications

Post by palanzo »

pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
Haha. That's funny. Do you think the politicians would reduce the tax rate? No, they would keep the additional tax dollars raised and spend it all. :oops:
palanzo
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Re: Prop 19 CA Inheritance Property Implications

Post by palanzo »

quantAndHold wrote: Wed Nov 18, 2020 2:52 pm
pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
First time homebuyers are paying 1-1.25% of the sale price, which isn’t exactly high, especially when compared with other states.

My taxes would quadruple. My neighbor on the corner, who bought his place 50 years ago, would pay 10x. Most of my neighbors who are currently retired would pay a number somewhere between 4x and 10x of what they pay now.
The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California so they can get more tax dollars and spend them. California does not have a good track record in this regards as mentioned above.
RetiredAL
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Re: Prop 19 CA Inheritance Property Implications

Post by RetiredAL »

pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
To give a you perspective, since you don't live in CA.

Over the years, the "tax rate" applied to my assessed valuation has increased about 30%. I excluded from that "rate" the Sewer and Garbage, which converted by a bi-monthly bills to be included in the Property Tax, a few years back. My assessed valuation has increase by a factor of 3.5. My overall Property Tax bill has increased 4x.

Prop 13 only limits the base levy rate and the amount the assessed valuation can increase yearly. It does not limit "add-on" % rates such as bonds, nor does it limit adding parcel assessments such as for Water District and Flood Control bonds.

Yes, the tax man gleefully awaits new owners who are in their prime working years.

For the record, I've voted yes on the majority of the local funding ballot issues. I've also chosen to not claim senior exemptions to various funding add-ons, which are mostly School and Open Space bonds.
goos_news
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Re: Prop 19 CA Inheritance Property Implications

Post by goos_news »

palanzo wrote: Wed Nov 18, 2020 3:03 pm
quantAndHold wrote: Wed Nov 18, 2020 2:52 pm
pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
First time homebuyers are paying 1-1.25% of the sale price, which isn’t exactly high, especially when compared with other states.

My taxes would quadruple. My neighbor on the corner, who bought his place 50 years ago, would pay 10x. Most of my neighbors who are currently retired would pay a number somewhere between 4x and 10x of what they pay now.
The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California so they can get more tax dollars and spend them. California does not have a good track record in this regards as mentioned above.
Actually, this proposition actually benefits those 55+ retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in Santa Barbara could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
Edited to Note: There are other benefits as well, this is pointing out a significant expansion of a very fundamental benefit
Last edited by goos_news on Thu Nov 19, 2020 1:33 am, edited 1 time in total.
palanzo
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Re: Prop 19 CA Inheritance Property Implications

Post by palanzo »

RetiredAL wrote: Wed Nov 18, 2020 3:25 pm
pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
To give a you perspective, since you don't live in CA.

Over the years, the "tax rate" applied to my assessed valuation has increased about 30%. I excluded from that "rate" the Sewer and Garbage, which converted by a bi-monthly bills to be included in the Property Tax, a few years back. My assessed valuation has increase by a factor of 3.5. My overall Property Tax bill has increased 4x.

Prop 13 only limits the base levy rate and the amount the assessed valuation can increase yearly. It does not limit "add-on" % rates such as bonds, nor does it limit adding parcel assessments such as for Water District and Flood Control bonds.

Yes, the tax man gleefully awaits new owners who are in their prime working years.

For the record, I've voted yes on the majority of the local funding ballot issues. I've also chosen to not claim senior exemptions to various funding add-ons, which are mostly School and Open Space bonds.
Exactly so. And those "add-on" % rates such as bonds, and parcel assessments such as for Water District and Flood Control bonds, are becoming a larger percentage of the overall tax bill. It seems we can't have clean water without paying billions extra.
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Re: Prop 19 CA Inheritance Property Implications

Post by palanzo »

goos_news wrote: Wed Nov 18, 2020 3:27 pm
palanzo wrote: Wed Nov 18, 2020 3:03 pm
quantAndHold wrote: Wed Nov 18, 2020 2:52 pm
pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
First time homebuyers are paying 1-1.25% of the sale price, which isn’t exactly high, especially when compared with other states.

My taxes would quadruple. My neighbor on the corner, who bought his place 50 years ago, would pay 10x. Most of my neighbors who are currently retired would pay a number somewhere between 4x and 10x of what they pay now.
The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California so they can get more tax dollars and spend them. California does not have a good track record in this regards as mentioned above.
Actually, this proposition actually benefits those retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in LA could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
True. Let me rephrase. The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California coastal areas so they can get more tax dollars and spend them.

Is that better?
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sergeant
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Re: Prop 19 CA Inheritance Property Implications

Post by sergeant »

palanzo wrote: Wed Nov 18, 2020 3:38 pm
goos_news wrote: Wed Nov 18, 2020 3:27 pm
palanzo wrote: Wed Nov 18, 2020 3:03 pm
quantAndHold wrote: Wed Nov 18, 2020 2:52 pm
pshonore wrote: Wed Nov 18, 2020 1:11 pm Has anyone tried to calculate what the property tax rate would be if everyone paid on the true value? It would probably be a lot less than you think. Sounds like the folks who really get shafted are the first time homebuyers.
First time homebuyers are paying 1-1.25% of the sale price, which isn’t exactly high, especially when compared with other states.

My taxes would quadruple. My neighbor on the corner, who bought his place 50 years ago, would pay 10x. Most of my neighbors who are currently retired would pay a number somewhere between 4x and 10x of what they pay now.
The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California so they can get more tax dollars and spend them. California does not have a good track record in this regards as mentioned above.
Actually, this proposition actually benefits those retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in LA could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
True. Let me rephrase. The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California coastal areas so they can get more tax dollars and spend them.

Is that better?
No, it's not better. What do realtors care about increased tax dollars? If you spend a few minutes researching you will see the realtors funded Prop 19 solely to encourage more home sales. More sales equals more commissions which equals more dollars in the realtor's pockets.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
MathIsMyWayr
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Re: Prop 19 CA Inheritance Property Implications

Post by MathIsMyWayr »

sergeant wrote: Wed Nov 18, 2020 4:01 pm
palanzo wrote: Wed Nov 18, 2020 3:38 pm
goos_news wrote: Wed Nov 18, 2020 3:27 pm
palanzo wrote: Wed Nov 18, 2020 3:03 pm
quantAndHold wrote: Wed Nov 18, 2020 2:52 pm

First time homebuyers are paying 1-1.25% of the sale price, which isn’t exactly high, especially when compared with other states.

My taxes would quadruple. My neighbor on the corner, who bought his place 50 years ago, would pay 10x. Most of my neighbors who are currently retired would pay a number somewhere between 4x and 10x of what they pay now.
The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California so they can get more tax dollars and spend them. California does not have a good track record in this regards as mentioned above.
Actually, this proposition actually benefits those retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in LA could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
True. Let me rephrase. The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California coastal areas so they can get more tax dollars and spend them.

Is that better?
No, it's not better. What do realtors care about increased tax dollars? If you spend a few minutes researching you will see the realtors funded Prop 19 solely to encourage more home sales. More sales equals more commissions which equals more dollars in the realtor's pockets.
Any law or regulation has intended consequences and unintended consequences. It's better not to open the gate.
palanzo
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Re: Prop 19 CA Inheritance Property Implications

Post by palanzo »

sergeant wrote: Wed Nov 18, 2020 4:01 pm
palanzo wrote: Wed Nov 18, 2020 3:38 pm
goos_news wrote: Wed Nov 18, 2020 3:27 pm
palanzo wrote: Wed Nov 18, 2020 3:03 pm
quantAndHold wrote: Wed Nov 18, 2020 2:52 pm

First time homebuyers are paying 1-1.25% of the sale price, which isn’t exactly high, especially when compared with other states.

My taxes would quadruple. My neighbor on the corner, who bought his place 50 years ago, would pay 10x. Most of my neighbors who are currently retired would pay a number somewhere between 4x and 10x of what they pay now.
The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California so they can get more tax dollars and spend them. California does not have a good track record in this regards as mentioned above.
Actually, this proposition actually benefits those retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in LA could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
True. Let me rephrase. The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California coastal areas so they can get more tax dollars and spend them.

Is that better?
No, it's not better. What do realtors care about increased tax dollars? If you spend a few minutes researching you will see the realtors funded Prop 19 solely to encourage more home sales. More sales equals more commissions which equals more dollars in the realtor's pockets.
Which part do you disagree with? Of course realtors want to see more sales and more money in their pocket. That's why they spent $35 Million funding Prop 19. As I said realtors don't care about the retired folks. Happy to see them sell and go.
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sergeant
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Re: Prop 19 CA Inheritance Property Implications

Post by sergeant »

palanzo wrote: Wed Nov 18, 2020 5:18 pm
sergeant wrote: Wed Nov 18, 2020 4:01 pm
palanzo wrote: Wed Nov 18, 2020 3:38 pm
goos_news wrote: Wed Nov 18, 2020 3:27 pm
palanzo wrote: Wed Nov 18, 2020 3:03 pm

The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California so they can get more tax dollars and spend them. California does not have a good track record in this regards as mentioned above.
Actually, this proposition actually benefits those retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in LA could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
True. Let me rephrase. The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California coastal areas so they can get more tax dollars and spend them.

Is that better?
No, it's not better. What do realtors care about increased tax dollars? If you spend a few minutes researching you will see the realtors funded Prop 19 solely to encourage more home sales. More sales equals more commissions which equals more dollars in the realtor's pockets.
Which part do you disagree with? Of course realtors want to see more sales and more money in their pocket. That's why they spent $35 Million funding Prop 19. As I said realtors don't care about the retired folks. Happy to see them sell and go.
I disagree with your statement that realtors care about tax dollars. They only care about their commissions. Your statement about realtors not caring about retired folks and being happy to see them sell and go confuses me. You realize the big beneficiaries of this (besides the fire unions and realtors) are mostly retired folks? I'm sure the realtors WILL be happy to see retired folks sell (but not go) and purchase another more expensive home. I also don't think "politicians" want to clear out all the retired folks from the coast. I worked for government for 32 years. Retired folks are a valuable commodity to city coffers. They pay their bills, don't overuse city resources, and are a stabilizing factor in most areas.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
palanzo
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Re: Prop 19 CA Inheritance Property Implications

Post by palanzo »

sergeant wrote: Wed Nov 18, 2020 6:02 pm
palanzo wrote: Wed Nov 18, 2020 5:18 pm
sergeant wrote: Wed Nov 18, 2020 4:01 pm
palanzo wrote: Wed Nov 18, 2020 3:38 pm
goos_news wrote: Wed Nov 18, 2020 3:27 pm
Actually, this proposition actually benefits those retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in LA could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
True. Let me rephrase. The realtors and politicians don't care about the retired folks. They would just as happily see us all leave California coastal areas so they can get more tax dollars and spend them.

Is that better?
No, it's not better. What do realtors care about increased tax dollars? If you spend a few minutes researching you will see the realtors funded Prop 19 solely to encourage more home sales. More sales equals more commissions which equals more dollars in the realtor's pockets.
Which part do you disagree with? Of course realtors want to see more sales and more money in their pocket. That's why they spent $35 Million funding Prop 19. As I said realtors don't care about the retired folks. Happy to see them sell and go.
I disagree with your statement that realtors care about tax dollars. They only care about their commissions. Your statement about realtors not caring about retired folks and being happy to see them sell and go confuses me. You realize the big beneficiaries of this (besides the fire unions and realtors) are mostly retired folks? I'm sure the realtors WILL be happy to see retired folks sell (but not go) and purchase another more expensive home. I also don't think "politicians" want to clear out all the retired folks from the coast. I worked for government for 32 years. Retired folks are a valuable commodity to city coffers. They pay their bills, don't overuse city resources, and are a stabilizing factor in most areas.
If a retired person who has lived in the house of a long time is forced to sell or their children do then the state gets a lot more tax dollars. So does the city indirectly. The governor supported Prop 19 and he explicitly talked about older owners paying their "fair" share. I believe they do not care about retired folks and we will see the effect of this Proposition over the next few years. We can compare notes then.
otinkyad
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Re: Prop 19 CA Inheritance Property Implications

Post by otinkyad »

palanzo wrote: Wed Nov 18, 2020 7:15 pm If a retired person who has lived in the house of a long time is forced to sell or their children do then the state gets a lot more tax dollars. So does the city indirectly. The governor supported Prop 19 and he explicitly talked about older owners paying their "fair" share. I believe they do not care about retired folks and we will see the effect of this Proposition over the next few years. We can compare notes then.
I’ve tried to follow your arguments, and I can’t. What’s the actual bee in your bonnet?
fortunefavored
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Re: Prop 19 CA Inheritance Property Implications

Post by fortunefavored »

otinkyad wrote: Wed Nov 18, 2020 8:23 pm
palanzo wrote: Wed Nov 18, 2020 7:15 pm If a retired person who has lived in the house of a long time is forced to sell or their children do then the state gets a lot more tax dollars. So does the city indirectly. The governor supported Prop 19 and he explicitly talked about older owners paying their "fair" share. I believe they do not care about retired folks and we will see the effect of this Proposition over the next few years. We can compare notes then.
I’ve tried to follow your arguments, and I can’t. What’s the actual bee in your bonnet?
I've tried to follow this thread too, but it mostly seems to come down to "I am angry about taxes and I don't like them."

The two distinct parts of this proposition - older people being able to downsize and take their lower property tax basis with them is an obvious positive to retired people. The other half, no longer allowing non-owner-occupied inherited property to maintain the lower tax basis is obviously an attempt to collect more taxes.. but it is not "retiree unfriendly" since they will be dead.
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TimeRunner
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Re: Prop 19 CA Inheritance Property Implications

Post by TimeRunner »

fortunefavored wrote: Wed Nov 18, 2020 8:35 pmThe other half, no longer allowing non-owner-occupied inherited property to maintain the lower tax basis is obviously an attempt to collect more taxes.. but it is not "retiree unfriendly" since they will be dead.
Exactly. This is like single people who worry about dying before hitting the breakeven point in collecting Social Security.
One cannot enlighten the unconscious.
RetiredAL
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Re: Prop 19 CA Inheritance Property Implications

Post by RetiredAL »

otinkyad wrote: Wed Nov 18, 2020 8:23 pm
palanzo wrote: Wed Nov 18, 2020 7:15 pm If a retired person who has lived in the house of a long time is forced to sell or their children do then the state gets a lot more tax dollars. So does the city indirectly. The governor supported Prop 19 and he explicitly talked about older owners paying their "fair" share. I believe they do not care about retired folks and we will see the effect of this Proposition over the next few years. We can compare notes then.
I’ve tried to follow your arguments, and I can’t. What’s the actual bee in your bonnet?
I'm a different bonnet, but have been bee stung too, so I'll add my two bits.

Most of the times when the state politicians see extra money from an unexpected source, there is a food fight at feeding trough. The Governor saw that Prop 19 would allow more $ to be collected and he couldn't be labeled the bad guy since he didn't start it.

As various initiatives over the years have tighten up on the ability to freely tax more, our effective state name has slowly changed from Taxafornia to Feeafornia. The impact to the payers is about the same.

I would expect there will be buyer's remorse for years to come when people find out their transfer savings have been eaten up several times over by the states 10+% income tax on the house gains above exclusion amount. If I were to move for whatever reason, I would owe the state additional an $75K in income tax. My house is no McMansion. It's just a standard home.
RetiredCSProf
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Re: Prop 19 CA Inheritance Property Implications

Post by RetiredCSProf »

goos_news wrote: Wed Nov 18, 2020 3:27 pm
Actually, this proposition actually benefits those retirees that want to move and downsize. By being able to carry over their value, they can downsize, "downprice" or trade over without a tax impact. It helps soften the blow of staying in-state. A couple in LA could retire to Palm Springs, retain their tax basis, and bank the difference. A Silicon Valley couple could sell and move to the Sierra Foothills or wine country in a similar fashion (I have some older relatives who's kids and grandkids already moved inland). You may see some of the recent trends amplify in 2021+.
Misinformation! A previous law regarding property taxes, passed some years ago, benefitted senior homeowners in CA who moved and purchased a home of equal or lesser value in CA, once, and within the same county or to a county that accepts the transfer.

Passage of Prop 19 benefits homeowners, 55+ or disabled, who move and purchase (or construct) a home of greater value anywhere in CA, up to three times.

Here's an example of how it is intended to work: Suppose that I purchased my CA home 30 years ago and that my current tax assessment is $500K. My annual property tax (at 1% of the assessed value) is $5K, plus a bunch more for city refuse, school bonds, ... ,

Suppose that I sell my home for $1.1M and upgrade to a home in CA with a $1.7M purchase price. Without the passage of Prop 19, the tax assessment on my new home would be $1.7M in the first year of ownership; that is, property taxes of $17K (in 1st year).

Instead (with the passage of Prop 19), the tax assessment on my new home, in the first year of ownership, would be $1.1M -- the sum of the most recent assessment on my previous home ($500K) and the upgrade ($600K). The "upgrade" is the difference between my sale price of $1.1M and my purchase price of $1.7M. This lowers the property taxes to $11K (in 1st year of ownership).

That is, I can effectively "carry over" the prop tax discount on my current home to my next home, even if I upgrade.

-- edited to correct math
-- edited to qualify additional changes regarding prop tax assessment in selling and purchasing a replacement home in CA
Last edited by RetiredCSProf on Thu Nov 19, 2020 2:40 pm, edited 1 time in total.
MathIsMyWayr
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Re: Prop 19 CA Inheritance Property Implications

Post by MathIsMyWayr »

RetiredAL wrote: Wed Nov 18, 2020 10:51 pm
otinkyad wrote: Wed Nov 18, 2020 8:23 pm
palanzo wrote: Wed Nov 18, 2020 7:15 pm If a retired person who has lived in the house of a long time is forced to sell or their children do then the state gets a lot more tax dollars. So does the city indirectly. The governor supported Prop 19 and he explicitly talked about older owners paying their "fair" share. I believe they do not care about retired folks and we will see the effect of this Proposition over the next few years. We can compare notes then.
I’ve tried to follow your arguments, and I can’t. What’s the actual bee in your bonnet?
I'm a different bonnet, but have been bee stung too, so I'll add my two bits.

Most of the times when the state politicians see extra money from an unexpected source, there is a food fight at feeding trough. The Governor saw that Prop 19 would allow more $ to be collected and he couldn't be labeled the bad guy since he didn't start it.

As various initiatives over the years have tighten up on the ability to freely tax more, our effective state name has slowly changed from Taxafornia to Feeafornia. The impact to the payers is about the same.

I would expect there will be buyer's remorse for years to come when people find out their transfer savings have been eaten up several times over by the states 10+% income tax on the house gains above exclusion amount. If I were to move for whatever reason, I would owe the state additional an $75K in income tax. My house is no McMansion. It's just a standard home.
The upside is that qualified residents may change their residence without being hit with much higher property taxes by carrying their existing tax base with them. The downside is that some residents can no longer keep their ridiculously low property taxes for generations to come. It is not unusual to see two neighbors of homes of about equal assessed values pay wildly different property taxes, e.g., $2,000 vs. $30,000.
There is no limit to peoples' greed. That is a human nature, or an animal nature.
wwtraveler
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Re: Prop 19 CA Inheritance Property Implications

Post by wwtraveler »

As a few posters said, the history of Prop 13 is in the idea that a homeowner that was prudent for the long term gets burned by being prudent for the long terms. That's true and thus it's almost impossible to repeal. It would turnover a good chunk of coastal real estate for "the commoners" (<$2M) and who only knows what it does above that if anything due to complex ownership structures.

I think the idea really is "use it (live in it) or lose it (pay more taxes or sell it)". That's a good intention but will back fire. It's a way to not just raise income but to force someone to do something with an inheritance. As with all things like this, the situation should never have occurred to begin with (prop 13) and now undermining it creates boulder sized debris that will crush some folks.

One thing that I'm not clear on is that I basically read this prop from an inheritance standpoint to mean: primary residence, tax base moves, not primary residence, reassessment triggered. I would imagine the triggered reassessment is the same as what currently happens if there's a remodel or addition (permitted, hence so much unpermitted work). So put in a pool, reassessment, redo a kitchen (yes it requires a permit here) reassessment. In all those case it's the tax base that's reassessed not the cost basis.

While that's not ideal, I believe you do still get the step up cost basis at death so all the capital gains are effectively tax free. You get reassessed and your tax bill adjusts. Also many newer communities have mello roos (bond measures for you folks not in Califorina and CFD - community facility districts for you gov't nerds out there). These mello roos are often FIXED on a per lot basis. For example $2K for school/yr. Those kind of CFD's do not change even with reassessments. There may be some smaller ones in the <$20/year range that float. Stuff like street lighting, sidewalks, etc.

So more likely than not we are talking about the base tax rate of ~1% of the assessed value. So if you bought at $200K and it's worth $1M, it's a $8000/yr tax increase... sort of. It's actually less than that because if it was bought at $200K it's valuation does go up, max of 2% a year and trust me it's been pegged at that except for a few years in the recession. So how long do you think a $200K house took to get to $1M? Realistically even in California that's 25-30 years. Let's call it 27 years for our math. So $200K with increase of value of 2% for 27 years = $341,377.30. So if it really does reassess up to $1M it's $658,622.70 difference x 1% = $6586.23 increase in yearly taxes, not $8000/yr by the original math.

The game will play out in challenging reassessments for effectively totally depreciated homes. Just think of how huge a waste of effort that will be. County offices will be totally overwhelmed with appeals by sophisticated attorneys with many more times the resources than the county has. Just look at some county sizes to get an idea about the volume they could face. https://www.counties.org/pod/square-mileage-county For comparison the entire size of Rhode Island is 1200 sq miles. 38 counties out of 58 are bigger than that! There are only 5 counties less than half the size of Rhode Island. The county governments are already completely overwhelmed by the state there is no way they can take this on without incurring massively higher costs. I bet that extra cost alone wipes out most of the state's extra tax revenue.

Beyond that though, as USUAL, the folks with means and large empires won't be nearly as effected as things are already in family trusts or companies with complex ownership rules and structure. So the only people really getting hosed in a way that forces them to sell immediately will be those that get a lucky inheritance but it's worth worth several times their net worth and they can't afford the same legal resources as some others.

For folks that are real estate investors this just promotes rents to increase and encourages leases to be terminated as often as possible whenever legally permissible due to rent control and you have a perfect storm for EVEN HIGHER RENTS. Don't believe me? The most sophisticated rental algorithm is what the Irvine Company uses to set rent. It literally adjusts in real time and is setup to always charge the highest possible rate and punch out old leases when it's profitable to do so. Lawmakers can't hold a candle to that type of sophistication so I expect this to really backfire badly for rent affordability as both rents increase, supply dwindles (as folks sell out of being a landlord), and taxes potentially increase further.

Lastly what happens if you do make it your primary residence and live in it 2 years, then 5 years out sell it? If I read that right you'd get your increased cost basis at death say $200k to $500k and now if it's worth $750K in 5 years the entire $750K is tax free all while paying on some old tax basis around probably 350K. That seems to me to encourage even more hoarding of housing inventory and funny tax treatment options.
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