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.
Prop. 19, which passed by a razor-thin margin in the November election, expanded a tax break for some homeowners but repealed an important taxpayer protection for families. The effective date of this change was February 16, before most Californians even knew what had happened.
Here’s what happened: homes that are transferred between parents and children are no longer excluded from reassessment. Previously, children would continue to pay the same property tax bill that their parents had paid, with increases in the assessed value capped by Prop. 13 at a maximum of 2% per year. Not anymore. Now children inheriting their parents’ home or other property will receive a new tax bill based on a current market-rate assessment.
There are only limited exclusions for a family farm and for a home that is the primary residence of the parents if the home becomes the primary residence of the child within one year. Otherwise, the home and any other properties such as small businesses or rental homes will be reassessed as of the date of transfer. The new annual tax bill will be 1% of the market value which will easily double or triple the property tax bills of most transferred properties.
Unfortunately, the costly advertising campaign pushing Proposition 19 never mentioned the loss of this “intergenerational transfer” protection and the fact that this happened to families in the midst of a pandemic made it difficult or impossible to get information from government employees or even to record documents. There was little time to consult an attorney or revise an estate plan before the February 16 deadline arrived.
As families discover the harm of Prop. 19, more and more people are contacting the Howard Jarvis Taxpayers Association and telling us that they want to see the exclusion from reassessment for parent-child transfers of property reinstated. We agree. We are urging lawmakers to support a legislative constitutional amendment that reverses the damaging part of Prop. 19 and restores the constitutional protections that it quietly removed.
HJTA is also sponsoring Senate Bill 668, authored by Sen. Patricia Bates, R-Laguna Niguel, to delay the effective date of this portion of Prop. 19 for two years, until February 16, 2023.
Such a delay is within the Legislature’s power. Even though the effective date of the measure is now part of the state constitution, a 2007 court ruling in the case of Strong v. State Board of Equalization ruled that the definition of “change of ownership” may be altered by legislation. This offers a path to a reprieve for pandemic-weary Californians now at risk of a sudden and unaffordable tax increase during a time of bereavement.
We now know that Proposition 19 blindsided voters who were never informed as to its real impact. The parent-child transfer exclusion from reassessment was written into the state constitution in 1986 by Proposition 58. California voters had already abolished the state inheritance tax and prohibited any future inheritance taxes, but with property appreciating in value so quickly, children who inherited their parents’ property faced the equivalent of an inheritance tax when the property was passed to them and reassessed to market value. Children who couldn’t afford to pay the taxes were forced to sell the family property.
The uproar was such that the state Legislature unanimously passed a proposed constitutional amendment enacting the parent-child transfer exclusion and put it on the ballot as Proposition 58. It was approved by more than 75% of voters. Prop. 58 also wrote into the constitution what had already been written into state law: property passed between spouses was excluded from reassessment.
Senate Bill 668 would extend the period of time before a “change of ownership” would be defined as including parent-child transfers of a home and other property.
This is an extremely important bill, not only to California families that will suffer under Proposition 19, but also to county assessors and the state Board of Equalization. The speedy implementation date for Proposition 19’s changes to inter-generational transfers left assessors and BOE members scrambling to get answers to a long list of specific questions that the measure left unclear or ambiguous. SB 668 would temporarily enable a more orderly and equitable process for taxation of property that is passed to the next generation.
Longer term, the Prop. 58 parent-child transfer exclusion should be reinstated in its entirety. Californians who are ready to join this fight should contact their state representatives—look them up at findyourrep.legislature.ca.gov—and urge them to restore Prop. 13 for our children.
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.