Proposition 19 Reduced Tax Benefits for Family Estates – Los Angeles Sentinel | Los Angeles Sentinel
Proposition 19 was approved by voters last November by a narrow margin and it is creating tremendous uncertainty and confusion among ratepayers and assessors across the state.
Proposition 19 is a constitutional amendment to Proposition 13 that allows seniors and people with disabilities to sell their home and buy a new one without incurring increased property taxes. However, it is also a regressive policy that disproportionately impacts the ability of working-class and middle-income families to leave their homes for their children (and in some cases their grandchildren) without having to pay an increase in property taxes.
Since November 2020, my office has received dozens of inquiries about this difficult new law and it is important to understand the issues.
Not to stress this too much, Proposition 19 may actually force some lower median income working class families to sell their homes, family farms and other assets to avoid a new property tax burden because the property is now being reassessed.
To make matters worse, some of the tougher provisions have already been in effect since February 16 before many landlords really understood the impacts. Many rushed to sort out estate planning and family inheritance issues before February 16and deadline.
Let’s review: Under pre-Proposition 19 law, parents (Proposition 58) and grandparents (Proposition 193) could transfer residential and commercial properties to their children and grandchildren without a tax increase because homes would not be reassessed, allowing the original tax base to be carried over.
According to data from the Office of the Legislative Analyst, between 60,000 and 80,000 property owners statewide had adopted this tax savings each year, saving up to $10 billion in assessed property value from reassessment. .
In 2018, a Los Angeles Times investigation revealed that Hollywood celebrities Beau and Jeff Bridges had inherited a lavish Malibu home with access to a semi-private beach and panoramic views of the Pacific Ocean from their famous father, Sea Hunt actor Lloyd Bridges. The Times investigation found the brothers rented the home for $16,000 a month but kept their father’s annual property tax payment of about $5,000. This was possible because they inherited the house from their parents under Proposition 58, which was informally called the “Lebowski loophole,” after a character actor Jeff Bridges played in a movie. , The Big Lebowski from 1998. Many believe this was an unfair use of Proposition 58 – the Family Inheritance Act.
To address this legal “loophole”, under Proposition 19, only a parent’s primary residence can be transferred to their children, and that home must then become and remain the primary residence of the child or children in the year following the transfer. This was intended to close the “Lebowski” loophole that allowed the house to be used as a rental property.
While it certainly appears that the intention of the measure was to eliminate this legal loophole for the wealthy, the measure does not only impact “the 1%” who have benefited from huge financial windfalls, this also reaches a wider audience and includes working-class and middle-income families whose family assets are often found in the family home and perhaps other modest real estate investments. This puts new stress on the ability to pass on new found generational wealth.
It is now estimated that Proposition 19 will impact 40,000 to 60,000 families each year with higher property taxes and, according to the Office of the Legislative Analyst, will result in hundreds of millions of dollars annually from taxpayers. . Proposition 19, in effect, repeals Propositions 58 and 193.
Unfortunately, Proposition 19 was rushed to the ballot at the end of the legislative session and would have greatly benefited from further study and deliberation. Because of this ballot box rush, the measure is deficient, confusing and sometimes, seemingly, in conflict with its intent.
The campaign for Proposition 19 stressed that the initiative would provide much-needed assistance to the elderly, people with severe disabilities, and victims of fires and natural disasters, while simultaneously providing revenue to wildfire protection agencies. and counties. Indeed, it was entitled “The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act”. And this has positive aspects for the elderly and people with disabilities.
However, as I mentioned earlier, as of February 16, parents and grandparents can no longer transfer property to their children or grandchildren without the possibility of increased property taxes.
There is a solution to this regressive tax, and that is to encourage the Legislature to draft legislation that will serve as a corrective constitutional amendment to Proposition 19. Such a corrective constitutional amendment should aim to restore the ability of families to leave their houses and other property. to their children that had previously been available under Proposition 58 since 1986.
In the meantime, I am working with the California Assessors’ Association and with state legislators to enact legislation that will address the many shortcomings and ambiguities in Proposition 19.
I must point out that in the absence of legislative clarification, the implementation of Proposition 19 will be a significant challenge and will create a great deal of confusion and uncertainty for both the public and administrators.
For more information about Proposition 19 or other tax savings programs, visit assessor.lacounty.gov or call 213-974-3211.
Los Angeles County Assessor Jeff Prang has served since 2014. Upon taking office, Prang implemented sweeping reforms to ensure the highest ethical guidelines rooted in fairness, accuracy and integrity would be upheld in his office, which is the largest office of its kind in the country with 1,200 employees. It forms the basis of a property tax system that generates more than $17 billion a year.