A new bill that would defer implementation of Proposition 19 – a ballot measure that passed by a small margin in November – is designed to provide relief to families and businesses now facing unexpected tax bills.
Proposition 19 would force the reassessment to market value of property transferred within families, unless used as the new owner’s principal residence, Scott Kaufman, legislative director with the Howard Jarvis Taxpayers Association (HJTA) told the Northern California Record by email.
“Proposition 19 initiated the largest change to California’s property tax system since Proposition 13 while providing only three months for homeowners to consider what the resulting tax implications would mean for them and their children,” Kaufman said.
“SB 668 is an important first step in giving homeowners critical relief from inheritance tax hidden inside Prop. 19 and sold to voters through a misleading $50 million dollar campaign.”
SB 668, which was introduced by Sen. Patricia Bates, R-Laguna Niguel, is pending before the Senate Governance and Finance Committee.
Kauffman noted there are three parts to Prop. 19.
“We aren't taking issue with (the portability component and the wildfire fund),” Kaufman said. “The campaign in favor of Prop. 19 talked a lot about those first two parts but it made little mention that it would dramatically curtail the parent-child and grandparent-grandchild exclusion. Under the old law (Propositions 58 and 193), transfers of certain property (like the family home and up to $1 million in assessed value of other properties) between parents and children (and grandparents to grandchildren in certain cases) were excluded from reassessment, meaning the property tax bill stays the same after the property is transferred.”
But under Prop. 19, Kaufman noted that the family home will be reassessed to market value unless the inheritor moves in within a year (and even if they move in if the house is valued at over $1 million). That amounts to a significant tax increase on businesses and families, he said.
“The $1 million in other property protection was completely removed by Prop. 19 and any other properties will be reassessed to market value,” Kaufman said.
Both the Los Angeles Times and San Francisco Chronicle editorialized against Prop 19.
“This is incredibly hard on families,” Kaufman said. “People move as work and life take them elsewhere. It's not easy for them to just pick up and move into their parent's house within a year and claim it as their primary residence. But that's the only way to keep it in the family without getting slapped with a potentially huge property tax reassessment. The removal of the $1 million in other property also means that a second home, or even income-earning properties like a rental or family-owned businesses will be hit with reassessment potentially beyond the inheritors’ ability to pay. Generations of hard work will be lost. It's an attack on generational wealth and the American Dream of giving your kids better than you had.”
Proposition 19 was the November election’s closest ballot proposition decision, passing 51% to 49%.
“The short timeframe to respond to Prop. 19 is especially hard for elderly homeowners struggling to make one of the most important financial decisions of their lives during the COVID-19 pandemic and resulting government-imposed lockdown,” Kaufman said. “Plus, the non-partisan Legislative Analyst's Office projects that Proposition 19 could eventually cost California families hundreds of millions of dollars annually in higher property taxes. It's a tax hike and one that we feel is akin to an inheritance tax. Californians don't need tax hikes during a pandemic and especially ones that target those grieving the loss of a parent or grandparent.”
Prop 19 opponents have noted the campaign ads weren’t designed to make people aware of what they were actually voting for; more than $60 million in contributions was put forth by realtor associations at a time of historically low housing inventory, and voters had rejected a similar ballot measure by a 20% margin in 2018.
“Under Prop. 19, children could be forced by higher taxes to sell their family's property, such as a small business that has provided the family with financial security, and their longtime family home if they can't move into it fast enough,” Kaufman said. “However, it can be reversed. SB 668 just gives people time to figure out how to respond to these new tax implications but the inheritance provisions in Prop. 19 can be undone and Propositions 58 and 193 can be restored. The Howard Jarvis Taxpayers Association is considering all our options.”