The race is on for people who inherit their parents' homes to avoid a hefty property tax bill.
Proposition 19, which was narrowly passed by the state's voters in November, closes a tax loophole when it comes to the transfer of homes from parents to their children. But Proposition 19 also reduces the property tax burden for those 55 and older and those displaced by wildfires seeking to buy new homes.
Proposition 19 goes into effect on February 16, so many in the state are transferring their inheritance, their homes, to their loved ones now before the new property taxes increases go into effect.
Property taxes on family homes that are the principal residence for parents and their children were effectively based on the price when the homes were purchased, significantly limiting the increase of property taxes on the homes thanks to Proposition 13. Proposition 13 was the infamous ballot measure passed in 1978 in a tax revolt that significantly reduced how much property taxes could be raised.
But beginning February 16 when parents transfer their homes to their children, the property taxes will be based on the current market value of the home, thus significantly raising its property taxes.
Even though it could theoretically cost Tulare County tax revenue, the Tulare County Tax Assessor's Department actually issued a press release last week informing people of the change that will happen on February 16.
As of last week there have been 356 “parent-to-child” exclusions filed as far as the transferring of homes, stated Assistant Assessor Tim Kochendarfer. He said 244 of them would have been subject to a tax increase if they had waited until February 16.
“If you intend to transfer property to your children, filing for an exclusion under the current statute will minimize your risk of a tax increase,” said Kochendarfer.
Prop. 19 also imposes a value cap that will limit the number of homes that will qualify for a tax benefit.
Property owners who file for parent-to-child reassessment exclusions prior, up to February 16, can still take advantage of current statutes and pass down their preferential tax assessments to their children, the Tax Assessor's Department stated. Applications can be requested by calling the Office of the Assessor at (559) 636-5100, or by visiting the assessor’s website, tularecounty.ca.gov/assessor.
But those who supported Proposition 19 say it will bring substantial revenue to firefighter efforts that's desperately needed considering the record year for wildfires that happened in 2020. They say Prop. 19 will provide need revenue to fire districts and CalFire to combat wildfires and will also provide funding for the prevention of wildfires. They say tax revenue from Prop 19 has the potential to save millions of homes.
It's estimated property tax increases that result from Prop. 19 will raise hundreds of millions of dollars annually. Tax revenue from Prop. 19 can also be used to fund health care, homeless programs, social programs and resources for businesses.
Proponents of Proposition 19 say it closes the loophole in which those who own vacation houses, second homes and beachfront rentals take advantage of, many of whom don't live in California. The proposition was also aimed at the wealthy and trust fund heirs.
Thus the term “The Big Lebowski” referring to the movie which starred Jeff Bridges. Bridges and his siblings advertised a beachfront home in Malibu inherited from their parents for nearly $16,000 a month in rent, but paid an annual property tax that was just a fraction of that amount.
Prop 19 also effectively works in reverse for people such as those 55 and older and those displaced by disasters, including wildfires. They will be able to transfer their existing property tax assessed value when they purchase a more expensive home.
So it's not surprising the California Association of Realtors supported Proposition 19 as it provides a carrot for realtors to offer to those helped by the proposition when trying to sell them a new home.
But it's also been noted many homeowners 55 and older in California are actually among those who are the most well off in the state to begin with.
Homeowners 55 and older in California are much more likely to be white and wealthy than younger renters,
The provision has since been dubbed “the Lebowski loophole” after The Times found that “The Big Lebowski” actor Jeff Bridges and his siblings had advertised a beachfront home in Malibu inherited from their parents for nearly $16,000 a month in rent despite an annual property tax bill that’s a fraction of that amount.