PD Editorial: Easing the tax bite from Prop 19

Proposition 19 did more than its TV advertising campaign suggested.

The measure, backed by the real estate industry, was presented as relief for senior citizens and wildfire victims, who would be allowed to buy new homes while avoiding higher property taxes. As a sweetener, it earmarked some revenue for fire protection.

The objective: more houses bought and sold, more commissions for real estate agents and brokers.

A previous version of the measure got swamped, failing by nearly 20 points in 2018. With the wildfire provisions added, Prop. 19 squeaked by in November with 51.1% of the vote.

What the ads didn’t mention was Prop. 19’s treatment of inherited property.

For many families, bequeathing real estate is the best opportunity for parents and grandparents to share assets with younger generations. Under Prop. 19, inherited property must be reassessed unless the heir uses it as a primary residence. So a family home or other property may come with a hefty increase in property taxes.

The likely result: more houses bought and sold, more real estate sales commissions, and fewer opportunities for people to earn extra income by managing a rental or to retain ownership of agricultural land.

We noted this in an editorial prior to the election, and so did other papers around the state. Our intention here isn’t to say we told you so, but rather to encourage support for legislation in Sacramento that would postpone Prop. 19’s tax penalty.

Senate Bill 668 by state Sen. Patricia Bates, R-Laguna Niguel, would open a two-year window for intergenerational property transfers without reassessment.

Prop. 19’s set a deadline of Feb. 16. As word spread about the new rules, thousands of people rushed to transfer title to their heirs. In Sonoma County, for example, the number of property transfers in December 2020 was nearly double compared with the same month in 2019. As the deadline approached in February, the year-over-year rate had tripled.

“Bottom line, it’s a little bit different to say, ‘OK, I’m willingly going in, I’m buying this piece of property,’ versus, ‘Mom and dad just died, and oh my goodness, what am I going to do because all of a sudden our property taxes just quadrupled,’ ” said Tawny Tesconi, executive director of the Sonoma County Farm Bureau. “Other than selling the property, (people) don’t have the funds to pay these property taxes.”

California voters approved Proposition 58 in 1986, allowing parents to transfer property to children without reassessment, because steep property tax hikes were forcing so many people to sell inherited homes and farms. The exemption was extended to grandparents in Proposition 193.

To accommodate seniors who want to downsize, and to free up large houses for families, voters approved measures allowing elders to keep Proposition 13 property tax breaks once if they bought a less expensive home in the same county or a county that chose to offer preferred tax treatment.

Prop. 19 expands that windfall exponentially: seniors, the severely disabled and fire victims can buy more expensive homes three times, anywhere in the state, while keeping preferred tax treatment.

Raising taxes on inherited properties was tacked on to avoid deep cuts in funding for public schools, a primary beneficiary of property tax revenue. And earmarks for firefighting sounded good in a state beset by wildfires.

Prop. 19 stands, unless voters change it. In the meantime, SB 668 would make the new tax rules a little more family friendly.

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