Is it True That Beneficiaries Who Borrow Against Irrevocable Trusts, Using Proposition 13 and Prop 58, Are All Wealthy and Elderly, and Cause California Home Sale Shortages?
42 Years of Property Tax Relief in California
After 42 years, tax relief in all 58 counties in California — from Proposition 13, and 34 years of property transfer tax breaks from Proposition 58 — is still protecting fortunate beneficiaries, inheriting real property, from egregious property tax hikes that were running rampant in California prior to 1978.
People have to understand something. Property owners in California have what every one should have in every state in America — legitimate property tax relief! Folks in that state can still legally avoid property tax reassessment from property taxes at current rates. That means avoiding all crippling tax increases on your home, every year.
When you inherit a house from your mom or dad upon their passing — and most beneficiaries without this form of tax relief would most likely have to sell off inherited property right after inheritance, due to high taxation on property transfer, and year after year, looking at those extra costs… not to mention the high cost of upkeep, maintaining a house these days, roof, boiler, utilities, heating costs in the winter, the list goes on and on.
Property Tax Breaks Driven By CA Proposition 13 & Proposition 58
And of course, as we just indicted, home owners in California pay property taxes that are based on established Proposition 13 “base year value”, avoiding property tax reassessment — paying taxes that their parents paid years ago. Not based on updated, reassessed market value year after year. So the money this frees up for California home owners, or commercial property owners, over a 20, 30, 40 year period is quite impressive, if you think about it, and run some numbers… It runs into the many tens of thousands, or even hundreds of thousands, of dollars. That’s a lot of money to not fritter away on unnecessary property taxes that the government could do very well without, thank you very much!
There is a number of realtors and writers at the Los Angeles Times, and San Fran Chronicle who actually believes that property tax relief is only for the wealthy in California… and that Proposition 13 is single handedly causing a shortfall of housing, plus less homes for sale, in the state of California… And that everyone taking advantage of Proposition 13 and Prop 58 are wealthy, and old, buying up beachfront property in Malibu for example — and then renting these lovely homes out for $20,000 per month to OTHER rich people!
Criticism of Proposition 13 and Prop 58 Are Largely Myths
Other than repeating the one and only one story about the Bridges family home on the beach renting out for $15,000 a month, having gotten there due to Proposition 13 tax breaks, there is no factual data that proves Proposition 13 actually causes a “shrinking inventory” of houses for sale in California. Articles in newspapers such as the LA Times or the San Francisco Chronicle only print quotes from nervous realtors, or academics merely projecting a personal opinion — based on sketchy anecdotal evidence at best; yet never presenting any convincing data to back these claims up.
It’s important to remember that the same parties promoting these false and exaggerated claims also admit that Proposition 58 does, without question, protect the adult children of parents transferring property to them, from steep tax increases on inherited property, as well as loans to irrevocable trusts from trust lenders, in concert with Prop 58 to make a transfer of property between siblings possible; buying out a siblings share of a house.
Just as Proposition 13 does, in fact, protect middle class homeowners from property tax increases year in, year out — replacing that dreaded event with a happier one — the right for beneficiaries and home owners avoid property tax reassessment; to transfer parents property taxes when inheriting property and of course inheriting property taxes. California is the only state in America where you can keep parents property taxes upon property tax transfer, always bearing in mind a parent to child transfer or parent to child exclusion.
This propaganda is basically myth driven by anxiety… Pushed by realtors and property brokers that are desperate to return their beloved real estate market back to where it was a decade ago. We’re sorry folks, it can’t be done. The real estate market in California. and in many other states, is going through a normal shrinkage process right now. A market that is not decreasing based on a few thousand home transfers, but that is experiencing modest shrinkage due mainly to the fact that (regardless of what Cable & Network TV News repeatedly tells us) — the job based economy in the US is not in fact booming, as they would have us believe…
Our job based economy is in itself contracting slightly, in manufacturing, in electronics and computer sales, in auto sales, and within various other formerly active verticals where white collar and high tech jobs are tightening, not expanding. So therefore fewer white collar folks with disposable income are putting their old home on the market and immediately purchasing a 7-figure home the first chance they get; and instead may simply stay where they are, or possibly even down-size, which many middle class and even upper middle class seniors in their early to late 60s are doing these days, and have been for some time.
So instead of blaming Proposition 58 for the fact that homeowners in California are holding onto their old home for a longer period of time rather than putting their house on the market after 9 or 10 years — folks in the media advancing these theories perhaps should take a closer look at the contracting real estate cycle we’re in right now. And stop blaming Proposition 13 and Proposition 58. It doesn’t add up.