California residents are undoubtedly feeling the heat when it comes to property taxes these days. In a recent column, I discussed how one aspect of Proposition 19 could be beneficial for Southern California seniors looking to transfer property and its associated tax rates to new residences. However, in light of the backlash and scathing feedback I received, I recognize that I should have provided a more balanced view. With that in mind, I am taking this opportunity to clarify some of the tax ramifications.
Effective February 16, 2021, all real property, including residential and commercial rentals, and second homes, will be revalued for property tax purposes at the current market value when the properties of the last surviving parent or grandparents are inherited by the next generation. There is an exception to this if the property is inherited by children, and at least one of the children plans to use it as their primary residence within a year. In such cases, the inherited property’s fixed Proposition 13 property tax rate may be transferred to the heir.
However, to maintain this tax rate, the heir must file a new homeowner’s exemption within one year of the date of death. Additionally, if the child(ren) who will be living in the home wishes to continue the exemption, they must also file a claim for reassessment exclusion between parent(s) or grandparent(s) within three years of the last surviving parent’s or grandparent’s passing.
Many people believe that voters were not fully informed about certain aspects of Prop. 19, particularly about restrictions to generational wealth transfer for investment properties. Jeffrey Prang, Los Angeles County Assessor, admits that while Prop. 19 has benefits for seniors, the disabled, and victims of natural disasters, the campaign did not adequately address the inheritance reduction that would occur as a tradeoff. He believes that if the public had known about this provision, Prop. 19 may not have been passed. The Howard Jarvis Taxpayers Association is currently fighting to restore Prop. 58, which would exclude the reassessment of parent-child property transfers.
While I am against the death tax portion of Prop. 19, the reality is that it is now in effect. To recap, seniors across California may transfer their existing, lower property tax rates to a new primary residence. According to data from the California State Board of Equalization, 23,089 homeowners who meet the age requirement have already taken advantage of this property tax advantage, with potentially more to come.
In other news, Freddie Mac rates have lowered, with a 30-year fixed rate averaging 6.71% and a 15-year fixed rate averaging 6.07%. The Mortgage Bankers Association has reported a 1.4% decrease in mortgage applications from last week. As always, borrowers should seek out the best possible rate when shopping for a mortgage, and consult with a qualified mortgage broker like myself for guidance.
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