Proposition 19’s death tax needs to die, readers say

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | June 13, 2023

Article originally posted in Orange County Register on June 08, 2023.

Property tax is a red-hot third rail in California, and I certainly felt its burn last week as readers lambasted me with a torrent of angry emails and phone calls.

They were furiously unhappy about my June 4 column, which shared one of the benefits of Proposition 19, calling its base property tax transfer a ‘godsend’ for Southern California seniors.

My apologies to every loyal reader I offended. My mistake was failing to mention in last week’s column something I did highlight in the previous one: How LLCs can protect heirs from property tax reassessments under Prop. 19.

So, today I offer a recap on Prop. 19’s death tax for certain inherited properties:

Effective Feb. 16, 2021, all real property including residential and commercial rentals and second homes will be reassessed at current property tax values when the properties of the last surviving parent or grandparents are passed down to children.

There is an exception to the reassessment. If the home is inherited by children with at least one of them planning to make it their primary residence within the first year, then that property will not be reassessed. The fixed Prop. 13 property tax of the parent (or grandparent) can be transferred to the heir.

A new homeowner’s exemption to maintain that tax assessment must be filed within one year from the date of death. The child (or children) who will be living in the home also must file a claim for reassessment exclusion between parent (or grandparent who survives the parent) within three years (date of death) of the last surviving parents or grandparents passing.

How did the death tax wiggle past voters? Many people I spoke with said they believe voters were not clear-eyed about certain portions of Prop. 19 and the consequences for families trying to pass on generational wealth built up through investment properties.

“There are clear benefits in Prop. 19 for seniors, the disabled and the victims of natural disasters,” said Jeffrey Prang, Los Angeles County Assessor. “However, I believe the public wasn’t informed about the trade-off that reduced family inheritance benefits in order to expand benefits for seniors. The campaign for Prop. 19 did not discuss this component, and over the past two years, I have learned that it is clear that the public was unaware of this provision. I do not believe 19 would have passed if the family inheritance reduction was understood by voters.”

The Howard Jarvis Taxpayers Association said it is planning to file an initiative with the California Attorney General’s Office to restore Prop. 58, which was approved by voters in 1986 and excluded a parent-child property transfer from a tax reassessment.

“Proposition 19 took that away and replaced it with the largest property tax increase in California history,” the association’s president John Coupal wrote.

You can read more about the efforts at reinstate58.hjta.org.

For the record, I am vehemently against the death tax portion of Prop. 19. My advice? California voters should dig a hole and bury the death tax by voting to rescind that portion of the proposition. This of course assumes there would ever be enough signatures to get an initiative on a statewide ballot.

Circling back to last week, I wrote about how the property transfer tax was seen as a “godsend” for those aged 55 and older. Prop. 19 allows homeowners across California to transfer their existing, lower property taxes to a new primary residence.

So far, 23,089 homeowners who meet that qualification have cashed in on this property tax advantage, according to data provided by the California State Board of Equalization. California’s fiscal year runs from July 1 through June 30 of the following year. Don’t be surprised if that number doubles as the Board of Equalization will soon release another year of 55-and-over property tax transfer numbers.

Freddie Mac rate news: The 30-year fixed rate averaged 6.71%, 8 basis points lower than last week. The 15-year fixed rate averaged 6.07%, 11 basis points lower than last week.

The Mortgage Bankers Association reported a 1.4% mortgage application decrease from last week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $689 less than this week’s payment of $4,002.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6%, a 15-year conventional at 5.75%, a 30-year conventional at 6.375%, a 15-year conventional high balance at 6.5% ($726,201 to $1,089,300), a 30-year high balance conventional at 7% and a jumbo 30-year fixed at 6.625%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.

Eye catcher loan program of the week: A 30-year FHA fixed rate at 5.25% with 2 points cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.