Vote 2020: California Proposals 15 and 19 Modify Real Property Tax | Lewitt hackman
Of the twelve statewide voting proposals certified to be on the ballot for the upcoming November 3, 2020 election, two are aimed at changing the taxation of real estate in California. Before delving into the proposed changes, a brief review of the current property tax regime is necessary.
Current property tax regime: Proposition 13 and descent
In 1978, after years of steady increases in property tax rates and frequent assessments of property values by the California legislature to deal with annual budget deficits, California voters approved Proposition 13. California Constitution to cap property tax rate at a percentage of assessed value and limited assessed value increases limited to two percent per year.
The value of real estate is revalued to fair market value upon a change of ownership (the “base year value”), or for real estate owned by an entity, a change of control. Each year after the initial reassessment, the appraised value is increased by the statewide consumer price index, not to exceed two percent per year (the “base year weighted value”) .
Proposals 58, adopted in 1986 and later codified by Article 63.1 of the Taxation Code, excluded from property tax reassessment transfers of immovable property between parents and children (in both directions) of a primary residence of any value in addition to real estate having a cumulative base year values of $ 1 million. This exclusion was extended by Proposition 193 in 1996 to transfers from grandparents to grandchildren (but not vice versa), as long as the intermediate generation died (i.e. child of grandparent, parents of grandchild).
Proposals 60 and 90 added additional protection against property tax reassessments for homeowners over 55 and are generally discussed in the same breath.
Proposition 60 (adopted in 1986) allows people over the age of 55 to sell their primary place of residence and transfer the base year weighted value of that residence to a replacement residence, provided that the residence of replacement is of an equal or lower fair market value than the original residence and as long as the replacement residence is located in the same county as the previous residence.
Proposition 90 allows a homeowner over the age of 55 to transfer the base year weighted value of a primary residence to a replacement house in a different county, provided the county in which the home is located. replacement authorizes this transfer. According to the Board of Equalization, only ten counties in California currently allow Proposition 90 inter-county transfers: Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolomne, and Ventura.
Proposals 60 and 90 provide for a one-time property tax exclusion; Once a homeowner or their spouse has a claim approved for this exclusion, both are excluded from future exclusion claims.
Finally, Proposition 110 (codified by article 69.5) of the Tax Code authorizes the transfer of the value of the base year when selling a principal residence to a replacement residence of a fair equal or lower market value by any seriously and permanently disabled person at the time of the sale of the original residence. This is also a one-time exclusion, and once claimed, it prevents the property owner from future Proposition 110 and Proposition 60/90 claims. Additionally, Proposition 110 inter-county transfers are limited to the ten counties listed above that have approved Proposition 90 inter-county transfers.
Ballot 2020: Proposition 15
Proposition 15 calls for several amendments to the California Constitution that would adjust the formula described above for property tax assessment, but only for real estate zoned for commercial and industrial use. Residential property owners would not be affected by the proposed changes. Likewise, owners of commercial and industrial properties holding properties with a fair market value of less than $ 3 million or properties zoned for commercial agriculture would also be exempt from the proposed change, which would require the filing of an application. annual exclusion. In addition, the proposed changes would be delayed for five years if at least fifty percent of a property is occupied by a qualifying small business.
Proposition 15 requires commercial properties to be reassessed at least every three years. The tax rate will be determined by the state legislature and therefore will no longer be constitutionally capped at one percent.
The proposed changes would convert California property taxation from the current “single roll” or “unified roll” system, where residential and commercial properties are assessed and taxed according to a common set of rules, to a “split roll” system. whereby the Property taxes for residential and commercial properties are assessed and imposed according to different standards.
Ballot 2020: Proposition 19
Proposition 19 seeks to revise the frequency and manner in which an eligible owner can transfer the base year weighted value of a principal residence sold to a replacement residence (currently governed by propositions 60, 90 and 110, explained above) – and significantly limit the parent-child and grandparent-grandchild exclusions.
First, the proposal aims to update the transfer of the base year weighted value for people over 55 and people with permanent disabilities.
Currently, a person over the age of 55 or with a disability cannot transfer the base year weighted value of a house sold to a new house in the same county, in accordance with Proposition 60, or one of the ten approval counties, in accordance with Proposition 90. This Proposition 19 of the year aims to enable people over the age of 55, people with disabilities and victims of natural disasters and hazardous waste contamination to transfer the base year weighted value of their original home to a new home located anywhere in California.
Victims of natural disasters and hazardous waste contamination could benefit from such a transfer. People over 55 or with a permanent disability would be entitled to three of these transfers, in addition to the one authorized by proposals 60 and 90.
Additionally, while Proposals 60 and 90 currently limit the replacement house to an equal or lesser value of the original residence, Proposal 19 would allow the move to a more expensive house but would require a pro-rated upward adjustment of the weighted value of the base year. For example, if a residence with a weighted base year value of $ 300,000 is sold for $ 1 million and a replacement residence is purchased for $ 2 million, the new weighted base year value will be $ 1.3 million (instead of the $ 2 million that would result in law).
The second major change sought by Proposition 19 is the limitation of the parent-child (Proposition 58) and grand-parent-grand-child (Proposition 193) exclusions to transfers from the principal residence of the transferor which continues to be used as the principal residence. by the beneficiary. . This change would eliminate the current exclusion of $ 1 million of base year weighted value that can currently be transferred for properties other than a personal residence.
In addition, the principal residence transferred from parent to child or grandparent to grandchild will only be fully excluded from revaluation if its fair market value is equal to or less than the sum of the weighted present value of the base year plus $ 1 million. Properties whose fair market value exceeds the sum of the current base year value plus $ 1 million would be revalued by adding the excess to the current base year value. The amount of $ 1 million would also be increased each year based on the evolution of the California home price index from 2023.