The elections and California propositions bring some changes ahead in the area of real estate and other areas will remain much the same.
Video Link
Slide Show Links - https://www2.slideshare.net/AlanWang6/november-2020-real-estate-update-presidential-elections-and-california-propositions
Presidential Election
We do not see many changes in the short run that will have a direct impact on the area of real estate. With the government working to provide necessary stimulus as we try to sustain and recover from the pandemic, one of the key areas of focus will be to ensure that Americans have the ability to pay their rents and mortgages. This will keep interest rates low for the foreseeable future and hopefully provide enough relief paired with forbearance to keep foreclosures from happening. Currently, there is a shortage of real estate especially in the area of Single-Family Homes, but at risk are Condominiums in metropolitan cities and Townhomes as well.
California Propositions
There were a few propositions that were focused on Real Estate on the California ballot.
Propositions 15 and 21 - Defeated
u Proposition 15 – Change in Commercial Property Tax – “Taxes such properties based on current market value, instead of purchase price. Fiscal Impact: Increased property taxes on commercial properties worth more than $3 million providing $6.5 billion to $11.5 billion in new funding to local governments and schools.”
u Proposition 21 - Local Government Rent Control – “Allows local governments to establish rent control on residential properties over 15 years old. Local limits on rate increases may differ from statewide limit. Fiscal Impact: Overall, a potential reduction in state and local revenues in the high tens of millions of dollars per year over time. Depending on actions by local communities, revenue losses could be less or more.”
Proposition 19 – Passed - Impact on Seniors and Transfer of Real Estate
“Allows homeowners who are over 55, disabled, or wildfire/disaster victims to transfer primary residence’s tax base to replacement residence. Changes taxation of family-property transfers. Establishes fire protection services fund. Fiscal Impact: Local governments could gain tens of millions of dollars of property tax revenue per year, probably growing over time to a few hundred million dollars per year. Schools could receive similar property tax gains”
This is the proposition that has the most impact on our local real estate market. The focus was upon those that were impacted by wildfires so that they could transfer their property taxes. However, lumped in this proposition is more flexibility for seniors with their property taxes and also changes to how inherited properties are handled.
Tax Base Transfer for Owners 55 Years and Older
In years prior, a senior over 55 transferring their property tax was allowed a one-time transfer, limited to 10 counties and there were value limits usually forcing the owner to trade down mostly.
With the passage of Proposition 19, seniors can now transfer their tax base up to three times, move to a county anywhere in the state of California and a home of any value can be purchased with adjusted transferred values if the price is over 100% of their departing home sale price.
These rules will come into effect on April 1, 2021.
Here is an informative chart from the Board of Equalization:
Source - https://boe.ca.gov/prop19/
Property Tax Transfer to a Child or Grandchild
In the past properties that were transferred to a child or grandchild, the property taxes were allowed to carryover and there was a $1,000,000 limit no matter what type of property.
With the passage of Proposition 19 there is a limit to the value (current taxable value plus $1M) and also this transfer will only apply to the primary home of the deceased. It is assumed that they Child or Grandchild will reside in the home to maintain lower property taxes.
These rules will come into effect February 16, 2021.
Another informative chart from the Board of Equalization:
Source - https://boe.ca.gov/prop19/
Conclusion
Overall, the expansion of property tax options to seniors giving more flexibility is a positive and also allows more revenue to the state in certain scenarios. Limiting the property transfer base to children and grandchildren although not ideal for the surviving family, allows more revenue to the state. In reality the family inheriting a property in our area will be at excellent prices, to pay the property taxes seems only fair. Of course, they could choose to sell the property and they still have a step-up basis in taxes if they choose not to keep the property.
Contact Us
Real Estate is complex and tailored to each family’s unique scenarios. For a planning meeting please call or text Alan at (408)313-4352 or e-mail me at alan@alanwangrealty.com so that we can build a strategy unique to you and your family!
Disclaimer
We are not experts in tax law or estate planning. You are highly recommended to talk to your Tax and Estate Planners or Lawyers to see how these propositions affect you and your family directly.
Credits
- All descriptions in “quotes” are from the California Secretary of State, California General election November 3, 2020 Official Voter Information Guide https://voterguide.sos.ca.gov/propositions/
- Board of Equalization Summary Charts for Proposition 19 - https://boe.ca.gov/prop19/
