PROP 19 CREATES CONFOUNDING QUESTIONS, GOTCHA RULES  

Under Proposition 19 a wave of parent-to-child property transfers are likely to be triggered before February 16, 2021.

What a mess.

Proposition 19, The Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act was so poorly written that experts have told me it may require action from California’s 58 county assessors, the California State Board of Equalization, California legislators, the courts or another ballot initiative to address messy questions this proposition has created.

The Proposition 19 pitch, sponsored by the California Association of Realtors (CAR) was in part to eliminate unfair tax loopholes used by East Coast investors, celebrities, wealthy non-California residents, and trust fund heirs to avoid paying a fair share of property taxes on vacation homes, income properties, and beachfront rentals they own in California. 

What CAR didn’t pitch was the financial hurt this proposition may have on an untold number of children and grandchildren of California homeowners. They may suffer a reduction of any potential income stream by paying higher or significantly higher property taxes on their parents and grandparents second homes and rentals. Or worse, they may be forced to sell because they can no longer afford the added property taxes.

Until February 15, 2021 parents and grandparents (if the children’s parents have passed) may transfer any properties, be it primary residence, second homes and investment properties to their kids maintaining the same property tax rate.

Starting February 16, 2021 all properties except the parents primary residence with an existing homeowners exemption that is transferred to the child/children whom must occupy the property as primary residence and file a homeowners exemption within one year of transfer are eligible to maintain the same property tax rate.

An existing parents’ Homeowners Exemption is a must for the children or grandchildren to avoid property tax reassessment.  

“For the parent-child exclusion to work, the parent has to have the Homeowners Exemption. It’s a requirement under the law. Not that they are eligible for the Homeowners Exemption but must have it,” said Stephen Whitmore, public information officer for the Los Angeles County Assessor. “30 percent of homeowners countywide now currently don’t have it that are eligible.”

One problem for lack of previous participation is the exemption is worth a mere $70 of property tax savings. The bigger problem is privacy. You are required to provide your social security number as part of the form filing as your county assessor sends this to the State Board of Equalization to monitor for fraud. You are allowed just one exemption on one property at a time under California law.

Do not confuse a homestead filing with a Homeowners Exemption filing. They cover very separate issues. The Homeowners Exemption is free. Contact your county assessor’s office for the Homeowners Exemption form.

More about Pandora’s Box.

Los Angeles County Assessor Jeffrey Prang points to many questions that will require clarification either through the State Board of Equalization, California Legislators, courts or a ballot to fix. “This was written hastily,” said Prang. He offered several examples for matters that will need to be addressed:

1)   Just how long do your children have to occupy your departing residence to maintain your lower property tax rate?

2)   Do all of your kids have to occupy your former residence?

3)   Can a child transfer to another child?

4)   Does the child to parent exclusion still exist?

5)   Can parents transfer consecutive family homes?

One California County Assessor wrote, “Anyone who wants to preserve a base year value on property other than a principal residence, needs to transfer that property to their children (or grandchildren if the provision applies) prior to February 15, 2021(February 16). I would expect we will see a wave of parent to child exclusions between now and then." 

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.