There is a lot at stake in the November General Election this year – including changes to California property taxes. With presidential election coverage dominating the news cycles and ad space these days it’s easy to forget about some of the other important issues on the ballot. This year, there are two propositions up for a vote in California, Proposition 15 (“Prop. 15”) and Proposition 19 (“Prop. 19”), which if passed, could substantially increase property taxes for certain types of properties and property transfers.
California is one of the few states in the country that has enacted laws to slow the increase of property taxes for both residential and commercial property. On June 6, 1978, California voters overwhelming approved Proposition 13 (“Prop. 13”), which was codified as Article XIII A to California’s Constitution and essentially capped property taxes at around 1% of the market value of the property at the time of acquisition (this is called the “base year value”) After that, typically as long as the property has the same owner, the base year value generally cannot increase beyond 2% each year.
Before Prop. 13, the base year value was appraised and calculated every 1 -3 years and was always very close the current market value. As California property values increased rapidly, so did property taxes, and many property owners could not continue to own property due to the increasing property taxes. Prop. 13 was enacted to address this issue, and as a result property taxes are now calculated based on the value you acquire the property for (with a 2% increase each year) rather than the current fair market value.
Prop. 15 seeks to end the protections of Prop. 13 for commercial and industrial property owners. Prop. 15 has been referred to as the “Split Roll” – and if approved, it would allow the county to reassess the base year value of commercial or industrial property every three years (or more frequently). This means that property taxes for all commercial and industrial properties will be calculated based on the current fair market value, rather than the purchased value. It would not impact property taxes on residential property – hence the term “Split Roll”. Property owners with $3 million or less in property in California would also be exempt.
Many commercial and industrial properties in California have been owned by families for many generations, and such owners have been able to maintain relatively stable property taxes. If Prop. 15 is passed this could result in a very large reassessment on property taxes which in turn may be passed down to tenants and other occupants. The revenue generated from Prop. 15 would be used to supplement decreased state revenue and to implement the measure, it would also be used to support school districts and community colleges.
Prop. 19 provides some additional property tax protections, but mainly eliminates the parent-child and grandparent-grandchild exemption from reassessment for properties that are not used as the recipient’s primary residence. Currently, a parent can transfer (during life or at death) their primary residence and other real estate (up to $1 million in assessed value) to their children without the property taxes being reassessed on such properties. This means, a parent could essentially transfer their home (of any value) and rental property or vacation home (with an assessed value less than $1 million) to their children and their children would continue to pay the same property taxes each year that their parents had paid.
If Prop. 19 passes, a parent would still be able to transfer their primary residence or other property to their children, but the child could only keep the parent’s property tax base year on the property that they intend to use as their own primary residence. This means, that most inherited property (if not used as the child’s primary residence) would be reassessed up to the fair market value.
Property passing on death would be reassessed as of the owner’s date of death, and even if the heirs sell the property, they would be required to pay reassessed taxes from the date of death of the owner until the property is sold. This could create a substantial increase in taxes that the heirs of the decedent would be responsible for.
Prop. 19 also seeks to expand property taxes for homeowners over the age of 55, people with severe disabilities, or victims of natural disasters. Currently these eligible homeowners can transfer their assessed value to another home of equal or less value. If Prop. 19 is passed, these eligible homeowners would be able to transfer their assessed value to any property within the state of California, including more expensive property. It would also allow persons 55 and older or with disabilities to transfer their assessed value up to 3 times. As a result, older or disabled homeowners, or homeowners who were victim of natural disasters, can move throughout the state of California without paying higher property taxes.
Voting on Prop. 15 and Prop. 19 are just two of the many issues that California voters face in this November General Election. Check out further details on the general election ballot here: