Errin Simko has strong feelings about the 2020 state ballot initiative that eliminated the intergenerational transfer of low property-tax rates that provided lasting financial security in the wake of the landmark Proposition 13 more than 40 years ago.
“It was the most misleading, immoral thing that someone could do to California,” said Simko, a full-time nurse at Stanford Health Care, who stands to inherit her family home in Los Altos Hills.
Prop. 19, which passed with 51% of the vote, enables longtime homeowners to keep their low tax base when moving to another county in the state – up to three times. But for heirs of those longtime homeowners, it requires property to be reassessed. The result is higher property taxes with the reassessed value. One consolation is that heirs living on the inherited property benefit from up to a $1 million exclusion in reassessed value.
But generally, the initiative leaves many state residents confused over its impacts, with some pointing to unintended consequences. Detractors have gone so far as to predict a mass exodus of the middle class, with people moving out of California to more affordable states.
James Cunningham, managing partner with Cunningham Legal, offered an example scenario under Proposition 19: Heirs with an assessed value of $250,000 on a home with a market value of $1.5 million would have retained the yearly $2,500 property tax bill prior to Prop. 19. Under Prop. 19, that tax bill is now $15,000.
Cunningham, who specializes in estate planning, led a Feb. 22 webinar, “Fight to Fix CA Prop. 19,” in which he offered information and answered questions.
Also participating was Jon Coupal, president of the Howard Jarvis Taxpayers Association, which is leading an effort to get a new initiative on the November 2022 ballot to remove what has been referred to as “the hidden death tax.” The campaign needs to gather more than a million signatures by April 15 to qualify for this year’s ballot.
Pros and cons
Proponents of the proposition, backed by the California Board of Realtors, billed it as helping older homeowners, the disabled and fire victims looking to rebuild.
Those backing Prop. 19 said revenue collected from inherited properties could generate $2 billion annually, with funds benefiting schools, local governments and firefighting agencies.
Pro-Prop. 19 campaign ads suggested the initiative would negatively impact primarily wealthy property owners with
vacation or secondary homes.
But Simko pointed to negative impacts on middle-class and low-income families, too.
“My family home has a huge sentimental value to me,” she said. “I don’t want to be forced to sell the family home.”
Cunningham said people who own and manage small apartment buildings – apartments offering affordable housing – would be hurt by the “death tax.” The rise in property taxes could force heirs either to sell to developers or raise rents to cover the increases.
“This is anti-affordable housing,” Cunningham said. “Half of these rental units are owned by mom-and-pops. If their property were reassessed, their (tenants’) rents are going to go way up because their taxes are going to go way up.”
Coupal noted Prop. 13, co-written by Jarvis and passed in 1978, limited state property tax to 1% of a property’s assessed value and limited increases to 2% annually.
Prop. 58, passed in 1986, made Prop. 13 “inheritable,” he said, by allowing that low tax rate to carry over to heirs. However, Prop. 19 effectively nullifies Prop. 58.
Coupal said the Prop. 19 repeal initative would restore Prop. 58 as before with one exception: An assessed valuation exclusion on commercial property up to $2.4 million “to reflect economic reality.” Prop. 19 allows for no assessed valuation exclusion on commercial property.
To sign a petition for the new ballot initiative and for more information, visit reinstate58.hjta.org.
For a nonpartisan overview of Prop. 19, visit boe.ca.gov/prop19.
