California now has a death tax on property, and many Californians are just finding out about it.
Previously, a primary residence and up to $1 million of assessed value of other property could be transferred from parent to child without reassessment, so the property tax bill stayed the same.
No more. Effective on February 16, 2021, property transferred between parents and children is now reassessed to market value upon transfer, with only limited exceptions.
The new law is the result of a little-known provision in Proposition 19, which passed narrowly in November 2020 after a costly ad campaign touting its benefits for wildfire victims and seniors.
Ugly Surprise for Apartment Owners
The fine print of the measure held an ugly surprise, especially for apartment owners and their tenants. Multi-family housing transferred from parent to child will be reassessed to current market value, no exceptions.
That means a parent who hoped to leave income property to the next generation will also be leaving them a new, much higher property tax bill, effectively an estate tax that has to be paid every year.
That’s a nightmare scenario for families that inherit older buildings, especially in cities where tenants pay below-market rents under longstanding rent-control ordinances. Now, the Proposition 13-limited base-year property tax assessment is lost at the moment of transfer, replaced by a new base-year assessment. The new tax bill will be 1% of the current market value, plus charges for local bonds, taxes and fees. That sharply higher cost could push many apartment owners so deep into red ink that they choose to get out of the business of providing housing.
For that reason, Proposition 19 was a bad deal for tenants, too, especially those who live in older buildings that will be inherited by the children of a longtime owner. Under Proposition 19, high taxes resulting from intergenerational transfers will put upward pressure on rents and turn rental housing into a dismal game of musical chairs as affordable units are withdrawn from the market.
The taxpayer protection that Proposition 19 took away was put into the state constitution in 1986. The Legislature wrote a constitutional amendment to create the parent-child exclusion from reassessment and passed it unanimously in both houses. It was Proposition 58 on the ballot, and it was approved by more than 75% of voters statewide.
Ten years later, Proposition 193 extended the same rules to transfers of property between grandparents and grandchildren if the children’s parents were deceased.
Proposition 19 took that away, too.
Now, only a parent’s primary residence that becomes the permanent primary residence of the child within one year is excluded from reassessment, with a $1 million cap on the additional value that may be excluded. Assessors will have to reassess all property that is inherited and then apply the limited exclusion for qualifying primary residences.
The only other exclusion from reassessment is for family farms. All other property, including small business properties and rental housing, is now reassessed to full market value upon transfer from parent to child or grandparent to grandchild.
It’s hard to imagine anything more callous than the government sending a giant tax bill to a bereaved family, but thanks to Proposition 19, many California families will have that unfortunate experience.
Sign the Initiative to Protect Families!
HJTA is sponsoring an initiative that will restore Proposition 58 and Proposition 193 to the state constitution. The Repeal the Death Tax Act would enable parents or grandparents to transfer a primary residence of any value to their children or grandchildren without triggering reassessment. The initiative also excludes up to $2.4 million of assessed value of other property from reassessment when transferred to the next generation.
That figure is the inflation-adjusted value of the $1 million exclusion that was in 1986’s Proposition 58, and it would be adjusted annually for the cost of living, capped at an increase of 2% per year to match the growth in taxable value under Proposition 13.
We are collecting signatures right now. The initiative needs 997,139 valid signatures of registered voters by mid-April in order to qualify for the November 2022 ballot.
The official petitions are available in all AOA offices, at the HJTA offices and by mail. Find your local AOA office at https://aoausa.com/contact-us/ or call HJTA at 916-444-9950 or 213-384-9656. To request the petition online and have it mailed to you, go to HJTA.org/RepealTheDeathTax and click “Get the Petition.” Complete instructions will be mailed with the petitions, or visit https://reinstate58.hjta.org/volunteer-center/ to download the instructions and find other helpful information.
Also, at the Repeal the Death Tax website, individuals and groups can sign up to join the coalition, donate online or by mail, download flyers and FAQs, and find the latest news and information about the campaign.
This is a grassroots initiative and we welcome everyone’s help to get this on the ballot. It’s vital to protect California families from being taxed out of their own property. This is the spirit of Proposition 13.
Jon Coupal is President of the Howard Jarvis Taxpayers Association – California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights. For more information, visit www.hjta.org.