Dramatic Savings for Californians, with a Positive Affect on Personal Net Worth, Family Bonding and Peace of Mind

Not to over indulge in generalizations, however when you consider the Proposition 58 tax break, or Proposition 58 property transfer tax relief, in simple human terms, you can clearly see how this type of tax relief allows concerned middle class parents, many of whom without this tax relief would frequently not be able to afford to maintain homes in addition to their own primary property, enabling their young adult children to reside in a safe neighborhood, often nearby; frequently giving middle aged and elderly parents a great deal of peace of mind.

Due to Proposition 58 property transfer tax relief, parents are also able to transfer a primary residence, or perhaps other properties they may own, to their children – without their property being reassessed at market value for state taxation purposes.  Obviously, the difference between having this type of tax relief to take advantage of, as in California; or not having it, as in most other states – can be quite significant.

Click here to look further into details regarding Proposition 58, parent to child transfer, and avoiding property tax reassessment

A home in California that is owned and maintained by the same family over decades, transferred to offspring… is generally assessed at a fraction of the current value of the house and land. This typically makes it possible for young adult, and older adult, children of middle class parents, to raise their own children in a safe middle class environment, as well as saving thousands if not tens of thousands of dollars per year.

The type of key financial support that Proposition 13 and Proposition 58 afford home-owning families in California, often helps to keep a tight knit family closer together, to choose to live nearby as opposed to settling for a less expensive and less desirable dwelling, often far away from family. As we often have noticed, multiple home ownership by doting parents often reveal homes that are near each other — thereby preserving an even tighter family bonding fabric, while establishing a safe environment for the parents’ grandchildren to grow up in.

Whereas if children, and grandchildren did not have this form of tax relief enabled by Proposition 13 and Proposition 58, allowing property transfers without crippling property tax increases – they very well may have had to settle for a less attractive, less safe neighborhood, often far away from the parents, and often exposing children to less desirable elements, and school systems.

The most popular, or well known, scenarios affecting peoples’ lives directly in California; qualifying homeowners for a Proposition 58 tax exclusion, including the transfer of real property:

(a) from parents to children;
(b) from children to parents, as individuals;
(c) from grandparents to grandchildren as individuals;
(d) between joint tenants;
(e) from trusts to individuals;
(f) from individuals to trusts.
(g) to or from any child born of the same parent(s);
(h) to or from any step-child, any son-in-law or daughter-in-law; or any child who was adopted prior to age 18.

Naturally, the most popular scenarios enabling qualification for “property exclusion” include property transfer by inheritance, by gifting, or by sale.

California Proposition 13

California Proposition 13

California Proposition 13 is also known as “The People’s Initiative to Limit Property Taxation”.  Prop 13 is an amendment to the Constitution of California that became law in 1978. When voters in California passed Proposition 13, the maximum amount of tax on real estate no longer could exceed 1% of the total cash value of your home, or additional real property you owned.  Moreover, Prop 13 limited yearly increases of assessed value of real estate to an inflation factor not to exceed 2% per year.

Another component of Proposition 13 is that it prohibits reassessment of new base year value, except when there is a change in ownership of real property, or new construction. This permits homeowners in California to refinance a mortgage without being concerned that their home, or real  property, will be reassessed for market value. This is often of particular concern to elderly homeowners, who frequently reside in the same home for decades; and therefore have many opportunities to re-mortgage, with a long-term payment schedule in place.

In 1986 California voters passed Proposition 58, which, in a sense, works in concert with the limits that Proposition 13 places on your home’s tax base.  In other words, Proposition 58 excludes transfers of real property, between parents and children, from current market value tax reassessment. Prop 58 allows property to be transferred from parent to child, or vice versa, with the use of a Trust.  For example, this enables an adult child to inherit a home from a parent, and keep the parents’ low Proposition 13 tax base. The ability to do this  frequently saves beneficiaries receiving property from parents literally thousands of dollars per year, and in many cases tens of thousands of dollars, in property taxes.

There are some restrictions when it comes to proposition 58.  Properties held in a Trust must meet certain requirements in order to qualify.  For instance, one  requirement states that no funds from an acquiring beneficiary can be placed in the Trust.  In that particular circumstance, a loan is often received from a third party, and placed in the Trust. You can learn more about third party loans for California Proposition 58 qualification here.

There have been some discussions in the media, and among the political class, in California, about repealing both Proposition 13 and Proposition 58.  However, as you can imagine, both Propositions have a great deal of support among California homeowners.

In fact, 42 years after California Proposition 13 went into law, it still enjoys popular support among most California homeowners.  It’s interesting to note that a survey by the Public Policy Institute of California revealed that 57% of  adults polled support the measure.  However,  58% would prefer to allow  homeowners keep Prop. 13’s tax relief and property protections (particularly for seniors) while imposing higher property taxes on business owners.  33% of those polled oppose that sort of taxation on business owners in California.

What do you think? Let us know… We’ll be publishing the results of this survey, so your participation is valuable, and greatly appreciated!  (Your name and contact info will of course remain confidential and private, and will never be shared with any third party entities)…