How to Read Your Property Tax Bill

property taxThanks to Proposition 13, property tax bills are less scary in California than they are in a lot of other states. Homeowners in Illinois and New Jersey, just to cite two examples, have been known to let out a blood-curdling scream when they open the tax collector’s envelope that would be right at home on the soundtrack of a Jamie Lee Curtis movie.

Proposition 13 limits increases in a property’s assessed value to 2 percent per year and provides property owners with a pretty good idea of what their tax bill will be before they open the envelope.

Still, there can be some surprises. Taxpayers should understand the various charges and check the tax bill to make sure they’re not being assessed for more than they’re legally obligated to pay. It’s a good idea to compare each year’s tax bill to the previous year’s bill.

For most California counties, the property tax bill will show three categories of charges. They are the General Tax Levy, Voted Indebtedness and Direct Assessments.

The General Tax Levy is what most people think of when talking about property taxes. It is based on the assessed value of land, improvements and fixtures. This charge usually makes up the largest part of the tax bill and it is the amount that is limited by Proposition 13.

The annual increase in the General Levy of Assessment should be no more than 2 percent, unless there have been improvements to the property, like adding a room to the house. However, if a property received a “reduction in value” reassessment under Proposition 8, the taxable value may go up more than 2 percent to reflect the recovery in the market value. But in no case will the taxable value be more than the initial Prop. 13 base year plus 2 percent annually from the date of purchase.

If homes like yours are selling for less than the valuation on your current bill, contact your county assessor and ask for an adjustment to reflect the actual market value.

The second category of charges is Voted Indebtedness. …

Click here to read the full article from the Los Angeles Daily News

Locals Governments Seek New Levies Despite $4 Billion Property Tax Surge

taxesLocal government officials throughout the state got some very good financial news when county tax assessors toted up changes in taxable property values for their 2018-19 budgets.

The state’s uber-strong real estate market generated a 6.51 percent increase in those values, adding another $374 billion to the property tax rolls and pushing the total to $6.1 trillion.

That increase, three times the rate of inflation, translates into $4-plus billion more in revenue for cities, counties and other local governments. While schools also receive property taxes, they don’t directly benefit from the increase because of how state aid is structured.

The big winners are cities because, unlike counties and schools, they are almost totally dependent on local taxes and fees to finance their budgets. San Francisco, which is both a city and a county, reported the state’s strongest assessed valuation gain, 10.35 percent.

The very strong growth in property tax revenue, however, raises a pithy question: Why then are so many local governments, cities especially, complaining that they can’t balance their budgets unless local voters raise taxes?

There are 254 local tax increases on the November ballot – sales taxes, parcel taxes, utility taxes and hotel/motel taxes, mostly – according to the California Taxpayers Association, 65 percent more than there were four years ago.

The reason is that even with strong property tax gains, local governments’ pension costs are growing faster than revenues, thus putting the squeeze on their budgets.

Cities have been hit the hardest by increases in mandatory payments to the California Public Employees Retirement System (CalPERS) as it tries to shrink its large “unfunded liability.” City officials have repeatedly complained about the specter of insolvency if pension payments continue to grow and the League of California Cities has labeled the situation “unsustainable.”

With very rare exceptions, however, officials who place the tax increases on the ballot will not publicly say the extra revenue is needed to offset rising pension costs. Officials believe that telling the truth would make voters less likely to vote for the new taxes. It could also make employee unions less likely to provide money for tax campaigns.

Rather, on the advice of high-priced consultants, they say the money is needed for popular police and fire services and parks.

Unfortunately, most local news media are carelessly complicit in this conspiracy of silence, tending to accept the official reasons at face value, rather than analyze them critically. That’s true even though data about what revenue the new taxes would generate and projections of pension costs are readily available.

Over the weekend, for instance, the Sacramento Bee published a long article about proposed tax increases in Central Valley cities, quoting officials about what they hoped to do with the extra revenue, including Sacramento Mayor Darrell Steinberg, who called his one-cent sales tax hike a “game changer.”

However, the article only tersely mentioned pensions as something brought up by unnamed “critics,” even though the city’s own budget complains about pension costs and data indicate that the new taxes would largely go to pensions.

The Santa Cruz Sentinel, in a similar piece about new hotel/motel tax proposals in its region, took the opposite – and more responsible – tack by delving into how pensions are straining local budgets and driving tax hikes.

The Sentinel’s article, unfortunately, is a very rare exception. Otherwise, local officials and local media seem to believe that ignorance will be blissful.

olumnist for CALmatters

Big Change in Proposition 13 Could Be Headed To Ballot

Voting BoothsCalifornia’s largest companies could find themselves paying an additional $11 billion a year in property taxes under a ballot measure that would dramatically revise the state’s tax-cutting Proposition 13.

Schools and Communities First, a wide-ranging group of community organizations, education advocates, unions and foundations, turned in 860,000 signatures Tuesday that would put that initiative on the November 2020 state ballot.

Under Prop. 13, all California property, residential and commercial, is reassessed only when it is sold. Houses and condominiums, however, can turn over every few years, while many large businesses occupy their land for decades — meaning some have not had property reassessed since Prop. 13 passed 40 years ago.

The proposed ballot measure calls for a split tax roll that would require commercial and industrial property — but not homes and small businesses — to be regularly reassessed and taxed at their full value. …

Click here to read the full article from the San Francisco Chronicle

Proposition 5: The Property Tax Transfer Initiative

property taxProposition 5 will be on the November 6, 2018 statewide ballot and could provide you property tax relief if you are a qualified California homeowner.

If passed, Proposition 5 will extend Proposition 13 property tax benefits.

First, a brief history of property tax propositions:

  • Proposition 13 passed in 1978 making base property tax 1%, with 2% maximum annual increases.
  • Proposition 60 authorized seniors a one-time move of the property tax to another property. In the same county if the new home’s purchase price is equal to or less than the sold dwelling.
  • Proposition 90 allowed counties to accept Proposition 60 property tax basis from a home sold in a different county to be applied to those that accept low property tax transfers. 10 counties have opted into accepting these transfers.

What is being considered today:

  • If passed, Proposition 5 will make it so that those 55 and older will be able to move their Proposition 13 tax benefit to a home of any value, anywhere in California any number of times. Plus, Proposition 5 adds two addition categories of persons: those that lose their home to natural disasters and the permanently disabled homeowners of any age.

If you are thinking of moving call me at 949-616-2988 to discuss your particular circumstance.

Note: this article is not tax or legal advice.

For further details about Proposition 5 and how it may affect you read the information below.

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The California Association of Realtors sponsored the initiative and referred to it as the “People’s Initiative to Protect Proposition 13 Savings.” The California Attorney General describes Proposition 5 as “Changes Requirements for Certain Property Owners to Transfer their Property Tax Base to Replacement Property. Initiative Constitutional Amendment and Statute.”

Starting January 1, 2019 three segments of the population would be enabled to benefit from the passage of Proposition 5, they include: 1) homeowners over 55 with their primary residence in California, 2) homeowners that have had their primary residence substantially damaged or destroyed by a disaster, as declared by the Governor and 3) any homeowners that are a severely and permanently disabled person.

To fully understand the significance of the 2018 Proposition 5 you will need to have a basic understanding of the Howard Jarvis’s lauded Proposition 13, passed in 1978, along with Proposition 60, passed in 1986, and Proposition 90, passed in 1988.

Proposition 13 made it state law that property tax base rates are 1% of the full cash value, usually the purchase price, (minus the $7,000 homeowners’ exemption) and that the property tax may only increase a maximum of 2% per year.  Proposition 13 defined “full cash value” as the county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value” or the appraised value of real property when purchased, newly constructed, or a change in ownership that occurred after the 1975 assessment.

Proposition 60 allows seniors a one-time opportunity to use the Proposition 13 benefit of having their lower property tax basis transferred to a newly purchased replacement dwelling. Seniors are defined as any person over the age of 55 years and includes a married couple one member of which is over the age of 55 years. The current law in place is that the replacement dwelling must be of equal or lesser value than the dwelling to be sold. Proposition 60 only applies to intra-county primary residence replacements and was enhanced with the passage of Proposition 90.

In 1988, Proposition 90 was passed and enhances the Proposition 60 benefits by allowing counties to opt into allowing Proposition 60 transfers of property tax basis from other counties. Only 10 counties in California have chosen to accept this inter-county property tax bases, they include: Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara and Ventura counties.

Proposition 5 would enhance Propositions 60 and 90 by allowing homeowners 55 years of age or older to transfer their Proposition 13 tax basis to a home of any price (proportionally), located anywhere in the state, any number of times. Let me provide a hypothetical example to explain by what I meant by proportionally. Say you purchased your home 21 years ago for $200,000, with a property tax basis of $2,000 and with compounding your property tax basis is now $3,000 and your home is now worth $900,000 and you want to purchase a home for $1,200,000. You sell the less expensive home and purchase the home that costs $300,000 more, your property tax basis from the original home would move with you for the first $900,000 in value and your property tax basic 1% levy would only increase by the difference in the full cash value. Your new property tax would be the $3,000 moved basis plus an additional $3,000 for the property tax on the increased value. Therefore, your property tax base would be $6,000 instead of $12,000 (see Figure 1).

Figure 1, Buy Up Example

Figure 1, Buy Up Example

If you want to buy a less expensive home, your property taxes will be reduced proportionally equal to the original home. Any replacement property of equal or lesser value purchased or newly constructed by a person eligible to transfer the base year value of his or her original property, the base year value of the replacement property will be calculated by dividing the base year value of the original property by the full cash value of the original property, and multiplying the result by the full cash value of the replacement property. If in the same scenario as above, you sold your $900,000 property and purchased a $450,000 home the new property tax would be half of the new sale price or $1,500 per year (see Figure 2). The buy down is a little harder to follow so let me provide a second example. If your existing home sells for $600,000 and your property tax is $2,000 and you purchase a home for $400,000 your new property tax basis would be 1% of one-third of $400,000 or about $1,333.33 per year (see Figure 3).

Figure 2, Buy Down Example 1

Figure 2, Buy Down Example 1

Figure 3, Buy Down Example 2

Figure 2, Buy Down Example 2

The benefits to those that have suffered from having their primary residence substantially damaged or destroyed by a disaster, as declared by the governor, applies to replacement properties that are comparable to the home that was damaged or destroyed without regard to the age of the owner(s). This is explicitly for a replacement property that is located intra-county. Proposition 5 has language indicating that the state Legislature may authorize each county board of supervisors to adopt, after consultation with affected local agencies within the county, an ordinance allowing the transfer of the base year value of property that is located within another county in the State.

The third category of persons that may benefit from the passage of Proposition 5 include any severely and permanently disabled person, who resides in a property that is eligible for the homeowners’ exemption. The property tax base year transfer is also applied to replacement dwellings that are purchased or newly constructed on or after June 6, 1990. The benefit would be in place regardless of the number of prior transfers, the value of the replacement home or whether the replacement dwelling is located within the same county. There are other details, but this gives you a general overview of the three classes of persons that may choose to benefit from the passage of Proposition 5.

The California Association of Realtors believes that if Proposition 5 is approved by California’s voters it would make moving between counties once again affordable for California’s retirees, help victims of officially recognized natural disasters and provide relief to the severely disabled.  These property tax benefits would result in the freeing up of home inventory and encouraging home ownership. If you are considering moving contact me to discuss your unique real estate needs, (949) 616-2988.

John Paul Ledesma, GRI | Broker Associate | HomeSmart Evergreen Realty| DRE 01810644

www.MissionViejoREDispatch.com

Note: this is not tax or legal advice.

©2018 John Paul Ledesma

California’s Property Tax Postponement program aids low-income seniors

property taxFor Californians who are struggling to pay property tax bills that are rising ever higher due to the increasing number of local bonds and parcel taxes, help may be available.

Property taxes are held in check by Proposition 13, passed by voters in 1978. It limited the annual increase in the assessed value of a property and cut the tax rate to 1 percent statewide. Prop. 13 has helped millions of Californians keep their homes by keeping property taxes predictable and affordable.

But keeping property taxes in check doesn’t always keep property tax bills in check. That’s because extra charges for voter-approved debt or special taxes can be added to property tax bills, and those can really add up. This can become a terrible burden for homeowners who live on fixed incomes, and may even force some to sell their homes because they can’t afford to pay the taxes.

Fortunately, the state of California has restarted the Property Tax Postponement program, allowing homeowners who are at least 62 years old, are blind or have a disability to defer the current-year property taxes on their principal residence if they meet certain criteria.

Before the Legislature ended the Property Tax Postponement program in 2009 amid budget cuts, nearly 6,000 homeowners throughout the state were able to benefit from it. Many had been in the program for 20 years or more and the majority were over 70 years old. In the last year of the program before it was cut, 208 people who claimed its assistance were over 90 years old.

In 2014, legislation was passed to restore the program, and it started up again in the fall of 2016.

To qualify, applicants must have 40 percent equity in their home and an annual household income of $35,500 or less. Other requirements also apply. For example, homeowners who have taken out a reverse mortgage are not eligible.

Homeowners who are accepted into the program may defer their current-year property taxes. It’s actually a loan from the state, with an interest rate of 7 percent per year. The state places a lien on the property until the loan is repaid, but repayment is not due until the homeowner moves or sells the property, transfers the title, refinances, defaults on a senior lien, obtains a reverse mortgage or passes away. …

Click here to read the full article from the Orange County Register

Taxing California: Highest in the nation and unstable, too

California’s major revenue sources have shifted over time. Until 1995, the biggest was property taxes. Today, it’s personal income taxes.

And California ranks fairly high in overall taxation: 10th highest both per capita and as a percentage of personal income, based on the latest available data from the U.S. Census.

In 2015, state and local governments collected $228.7 billion in taxes, including property, sales, personal and corporate income levies and a few others, according to the census. That’s in a state with more than 39 million residents and personal income worth nearly $2 trillion that year.

California’s taxes have risen in ranking partly because of voter-approved increases. In November 2012, the state passed a temporary hike in sales taxes of 0.25 percent and raised personal income taxes on the rich. Four years later, voters extended the income tax increase for 12 more years.

State tax

Gov. Brown and lawmakers also approved a 12-cent gas-tax hike in 2017 to help raise $5 billion a year for aging infrastructure. The measure includes increasing the annual vehicle fee between $25 and $175, depending on the vehicle’s value. …

Click here to read the full article from the Los Angeles Daily News

Enemies of Prop. 13 Delay Attack on Iconic Initiative

property taxA reporter for the Bay Area News Group stopped by the government office in Santa Clara County and concluded that while people standing in line to pay their property taxes were upset with the heavy burden, they had scant knowledge of California’s iconic Proposition 13. What most were probably unaware of is that their taxes would be at least twice as high without Prop. 13.

Many people who live in California today were not here in 1978 when Proposition 13 was passed overwhelmingly by voters. Today’s younger homeowners have little idea how frightened and angry citizens were in the mid-1970s when their property taxes doubled or even tripled from the previous year.  Homeowners were literally being taxed out of their homes.

But despite having no personal memory of the pre-Prop. 13 era, most Californians have at least heard of Proposition 13 and, when prodded, recall it somehow helps to keep escalating property taxes in check.

In June, Proposition 13 will hit its 40th birthday. While long-time homeowners will surely celebrate, those in government with an insatiable appetite for taxpayer dollars are hoping that voters will be ready to weaken it.  But previous attacks on Proposition 13 have come up short. At most, Prop. 13 was weakened by court decisions involving fees and charges as well as attacks on the two-thirds vote requirements.  But those attacks were quickly countered by subsequent ballot initiatives such as Proposition 218 in 1996, the Right to Vote on Taxes Act, which reinforced Prop. 13’s original intent.

Knowing that a direct attack on Proposition 13’s protections for homeowners is a fool’s errand, the tax-and-spend interests have focused on raising property taxes on business property. This so-called “split roll” effort has gone on for about 30 years and has never really gained any serious traction. According to these interests, 2018 was going to be the year where they would finally be able to take a big chunk out of Prop. 13 by hitting commercial real estate with several billion dollars in higher taxes.

The optimism displayed by Proposition 13’s detractors has been based in large part on the expected “blue wave” of voters coming out in support of progressive candidates. Liberal Democrats believe, rightly or wrongly, that voter disgust with the Trump administration might at least allow them to regain control of the U.S. House of Representatives. The thinking, at least until recently, has been that November of 2018 would be the right moment to fracture the pro-Proposition 13 alliance because of an energized progressive base, low voter turnout and fading memories of 1978.

But a funny thing happened on the way to the ballot box. After beginning a serious effort to collect signatures for their “split roll” initiative, the proponents have taken their foot off the gas and announced that, instead, they will attempt to qualify the measure for the 2020 ballot. The ostensible reason for the delay is that it would give them more time to expand their coalition (of course, the same can be said for Prop. 13 defenders) and that the voter turnout model in 2020 would be better for them – a dubious claim indeed.

Split-roll proponents might be having second thoughts about what they thought was a weakening of support for Prop. 13 or the political strength of their own coalition. Perhaps they’ve seen polling – both private and public – revealing Proposition 13’s continued popularity. Whatever the reason, this November’s election will not present a direct threat to Proposition 13. …

Click here to read the full article from the Orange County Register

Once again, California sees the unintended consequences of bad legislation

property taxLast July, we wrote a column regarding the foolishness of Senate Bill 2, a new $75 tax on real estate recordings, ostensibly for the purpose of funding housing programs. We pointed out that imposing a tax on real estate transactions to pay for programs to make housing more affordable is like treating someone with a low blood count with leeches.

While the fundamental irrationality of SB2 is water under the bridge, a host of implementation problems have now arisen that need corrective action, and quickly.

For example, SB2’s language makes it difficult for California’s 58 County Recorders to determine if they should charge the additional $75 for tax liens and lien releases presented by government agencies.

These tax liens can originate from small local business activities like selling Avon, from failure to pay your annual income taxes, from a missed tax payment on your jet ski, for child-support collection and more. You don’t even need to own a house to have one of these liens recorded against you, and worse yet, you may not even know that the lien exists until it shows up on your credit report.

State agencies and the IRS have refused to pay the $75, arguing that these documents are exempt from the new tax. The attorney general agrees (see AG 18-101), but California’s Office of Legislative Counsel issued an opinion that contradicts the attorney general — making it even more confusing for taxpayers and county recorders.

At this point, most recorders interpret the statute as mandatory, because the legislative counsel has told them this was the original intent of the bill. Therefore, they are mailing back lien releases as unrecorded to state agencies and to the IRS for lack of the $75. For property owners, this is a real problem because their debt has been paid but their credit is not cleared because the lien hasn’t been released.

Some taxpayers are so eager to clear their credit that they are intercepting the lien releases at their county recorder’s office and offering to pay the $75, legal or not. The Department of Child Support Services intends to record all lien releases itself instead of giving them to the redeemed payer to record more quickly on their own, but it is still being held up. Some child-support payers might be offering to take the release to the recorder themselves and paying the $75 to have their credit cleared. As the situation continues, however, others might be discouraged from paying up their child support arrears or tax debts in the first place. The extra hurdle is not helping the government, the taxpayer, or the children.

It is also true that the state of California cannot tax the federal government. Although this has been settled law for hundreds of years, many county recorders are attempting to collect the tax from the IRS. And although this is legal doctrine, it makes common sense as well. Would there be any sense or justice if the states had the power to tax the federal government out of existence?

Because the language of SB2 is so confusing, and it relies on many assumptions that the county recorder has no ability to independently verify, payment of the tax on most documents relies on self-certification. Most people do not have law degrees, so many people are paying the tax when they are not legally required to pay it, and others are receiving exemptions when they are not entitled to them.

SB2 gives a long but non-exclusive list of “real estate instruments” to which the fee applies. This includes a “release” and a “mechanic’s lien,” but not just a “lien” nor a “tax lien,” and certainly not a “child support lien.” SB2 also uses the words “transaction,” “in connection with” and “relating to real property,” none of which are defined in statute. Is enforcing a government debt a “transaction”? Are IRS tax liens and releases “relating to real property”? Tax liens use specific real property to enforce a debt, but they are not like a mechanic’s lien where the contractor performed work on that specific property.

There are many other types of liens where intent could vary as to whether to charge the $75: liens for postponement of property taxes for senior citizens, government liens recorded in error, government liens released due to discretionary re-prioritizing, and, less sympathetically, liens for graffiti nuisance abatements or violations of various safety codes. It is unclear whether the legislature intended to extend the tax to these recordings, although they were aware that this was a potential issue and chose not to address it.

Clean-up legislation is needed promptly. SB2, as substantive legislation, was bad enough. Its implementation is almost worse.

Jon Coupal is the president of the Howard Jarvis Taxpayers Association and Kammi Foote is the clerk-recorder of Inyo County.

This article was originally published by the Orange County Register

Prop. 13 targeted by proposed California ballot initiative

Forty years after Proposition 13 was approved by California voters, the issue of property-tax limits could be back on the state ballot in 2018.

A coalition of liberal groups is trying to qualify an initiative for the November ballot that would remove Prop. 13’s restrictions on reassessments and tax increases for corporate-owned property.

The backers say the initiative would keep Prop. 13’s protections for homeowners, residential renters, small businesses and farmers.

They say a projected $11 billion in new revenue from corporate property taxes would be used to provide needed funding for schools and community colleges as well as parks, libraries, health clinics, home-building, homeless services, roads and bridges.

But those promises haven’t kept low-tax advocates from slamming the would-be initiative, called the California Schools and Local Communities Funding Act of 2018. …

Click here to read the full article from the OC Register

Trick or treat, your property tax bill is here

property taxWhich is scarier showing up in your mailbox — Halloween movies from Netflix or your property tax bill? For homeowners, even “The Exorcist” can’t compare in terms of pure fright as the annual envelop from the tax collector’s office. Fortunately, however, homeowners are still able to count on Proposition 13 for protection.

While progressives in the California Legislature continue to target the struggling middle class for ever higher taxes, they have been unable to break Proposition 13. That landmark 1978 initiative limits increases in a property’s assessed value to 2 percent annually and provides most property owners a good idea what their tax bill will be even before opening the envelope.

This predictability in taxation allows homeowners to budget for their taxes and provides assurance against a sudden increase that could result in losing their home to the tax collector. Whether you purchased your property last week, or 30 years ago, Proposition 13 is maintaining a reasonable limit on annual hikes in your property tax.

Still, homeowners need to examine their property tax bill carefully because mistakes can happen. Taxpayers should understand the various charges and make certain that they are not being assessed for more than they are legally obligated to pay. The best way to check a tax bill is to have your previous year’s bill handy for reference.

For most California counties, the property tax bill will show three categories of charges. They are the General Tax Levy, Voted Indebtedness and Direct Assessments. …

Click here to read the full article from the Orange County Register