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California voters could make property tax transfers easier, more plentiful

By Anthony SanFilippo
June 2020

When California voters look at their ballots in November, they are going to see something familiar – a proposition to amend the state constitution that would create more opportunities for homeowners to transfer their current property tax assessment to a new home.

The new amendment proposal is much like Proposition 5, which failed on the ballot in 2018. However, this latest proposal, initiated by the California Association of REALTORS® (CAR), addresses property reassessments, which the association hopes will give it the little push it needs to pass this time around.

Residential market values are increasing rapidly year-over-year in California. The current state law says that properties cannot be taxed at more than one percent of the market value at the time the home is purchased and assessed values can increase annually at two percent, or the yearly inflation rate, whichever is lower.

Because the market values are increasing quickly, when someone moves from one home to another they are finding higher tax bills on their new home, when compared to their old home, even if the new home has the same or lower market value.

“The push for Prop 5 in 2018, and now this new amendment that will be on the November ballot, results from the fact that many homeowners choose to stay in their homes… in an effort to preserve their low property assessment levels.”

In the 1980s, voters twice approved ballot measures that allowed for the transfer of the taxable value of a sold home to a newly purchased home, but they each had stricter limitations. Meaning only homeowners over age 55, victims of a natural disaster or hazardous waste contamination, or individuals with significant disabilities were eligible for the property tax transfer.

But CAR is pushing for an expansion of that.

This measure would protect homeownership and provide property tax savings for families, seniors and victims of wildfires.

Homeowners who are 55 and older, individuals with severe disabilities and victims of natural disasters and wildfires would be allowed to transfer their property tax base to another home that better fits their needs, such as those who need easier access to medical care or who want to be closer to their families.

It would also open up more housing inventory, which would create more options for first-time homebuyers, as well as existing families and Californians who own a home and are looking to move to a new one.

Parents and grandparents would be able to continue to pass their home on to their children or grandchildren so families can move into the home as a primary residence without sustaining a big tax increase.

If this measure passes in November, schools and local municipalities would benefit greatly. NAR suggests that it could create “hundreds of millions” in tax revenue and help close budget gaps that have been created by the COVID-19 shutdowns.

Prop 5 failed in 2018 because a fiscal analysis suggested that there would eventually be a $2 billion loss for school districts and local governments, but according to the California Legislative Analyst the 2020 ballot measure would result in a net positive for school and local revenue. Even though the transfer of tax assessments would reduce the revenue, the changes in the inherited properties would make up the difference, plus add enough to put the revenues in the black.This would be done by closing existing tax loopholes that make housing more expensive and less accessible for Californians.

It would put an end to deceptive practices and tax schemes that cost schools and local governments up to $1.5 billion annually by ending tax breaks used by out-of-state investors and non-residents looking to improperly shield their vacation houses, second homes or investment properties to avoid paying their fair share of property taxes. Additionally, it would close tax loopholes used by some corporations to acquire business properties without paying the property taxes on the real value of the business property when it was sold.

Stopping these practices would generate new tax revenues which would fund programs such as health care, firefighters, emergency services and services for the homeless.

The new measure would also require reassessment to market value if 90 percent of ownership changes, even if no one person acquires more than 50 percent. This would be a change from the current rules where reassessment only happens if one person acquires more than 50 percent of the ownership of the property.

The push for Prop 5 in 2018, and now this new amendment that will be on the November ballot, results from the fact that many homeowners choose to stay in their homes, even if they aren’t the best fit for them, in an effort to preserve their low property assessment levels.

According to the CAR website, that’s stifling the California housing market because seniors are staying put, meaning there are fewer hoses going to market and first-time homebuyers and families in need of a larger home have fewer and fewer options to choose from.

Alex Creel, senior vice president for CAR, previously told the San Jose Mercury News that more portable tax rates will help everyone – seniors, growing families, and first-time homebuyers.

“While we don’t love our houses, we love our lower property taxes,” he said. “[The new amendment will] help older people sell their homes and help everyone on that housing ladder move up a rung.”

While the expansion of opportunities for eligible homeowners to transfer their property’s tax assessment to a new home would cause a decrease in revenue, the ballot initiative’s changes to inherited properties and ownership transfers would cause an increase.

According to the CAR website, if passed, the amendment would bring approximately 43,000 more homes to market each year.


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