One Proposition Has Had Its Share of Controversy
Of the 12 propositions that will be on the California ballot in November, two of them would make big changes to long-standing property tax laws.
The passage of Proposition 15, also called the “split-roll measure,” would repeal Proposition 13 protections for nonresidential commercial and industrial properties. These property owners would be required to pay property tax based on market value, instead of on the original purchase price indexed by no more than 2% per year. Residential properties, agricultural land, small businesses, and commercial and industrial properties with combined fair market values of $3 million or less would be exempt.
Reassessment of nonresidential commercial and industrial properties would be required every three years. The requirement would be phased in beginning in fiscal year 2022–2023, but some properties such as retail centers, whose occupants are 50% or more small businesses, would not be taxed based on market value until fiscal year 2025–2026 (or possibly later).
Just like past attempts to upend Proposition 13, this proposition has been highly controversial. Opponents say Proposition 15 would mean higher consumer costs, lost jobs, business closures, and a disproportionate impact on small businesses that usually rent their properties from larger commercial real estate owners. Proponents originally claimed that these increased revenues are essential to maintain our K-12 public schools, colleges, and local governments and are needed now more than ever to help communities that are struggling because of the COVID-19 pandemic and lost sales tax revenue.
However, even county assessors are saying that they may not have enough resources and trained personnel to handle the cost of the appraisals and expensive, lengthy appeals processes.
The passage of Proposition 19 would result in an increase in property taxes for transfers of California real property between parents and children or vice versa.
Under current law, a transfer of ownership in California real property generally results in a reassessment for property tax purposes with certain exceptions, including two exclusions from reassessment that can apply for transfers between parents and children:
- The principal residence exclusion allows the transfer of a principal residence of unlimited value between parents and children.
- The $1 million lifetime non-principal residence exclusion allows the transfer between parents and children of up to $1 million of assessed value of all other types of property (for example, second homes or rental properties). For a married couple, this would be a combined $2 million lifetime exclusion.
Under Proposition 19:
- In order to qualify for the principal residence exclusion, the receiving child would be required to use the residence as their own principal residence, and only the first $1 million of assessed value would be excluded. One thing that remains unclear is whether all the children must live there if they inherit the property together.
- The non-principal residence exclusion would be completely eliminated. However, the principal residence exclusion would apply to transfers of family farms.
Proposition 19 also would allow taxpayers who are over age 55, severely disabled, or a victim of a wildfire or other natural disaster to transfer their property tax adjusted base year value to a replacement property anywhere in the state (currently this benefit is limited to counties that have authorized the base-year property transfer). Taxpayers who are over age 55 or disabled would be able to transfer the base-year value of the relinquished property up to three times.
For more information about this article, please contact our tax professionals at email@example.com or toll free at 844.4WINDES (844.494.6337).
This article is reproduced with permission from Spidell Publishing, Inc.