Understanding California’s Property Tax Laws and Proposition 19

Property taxes are a contentious topic, especially in California, where Proposition 19 and other tax regulations have stirred strong opinions. Bethel Law's attorney, Andrew Bethel, recently addressed several questions raised by viewers in response to his video on property taxes, propositions 13 and 19, and transfers between parents and children. In this article, we will dive into the key questions and answers provided by Attorney Bethel, offering clarity on California's complex property tax laws.

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The Complexity of Property Tax Rates

One of the common criticisms of property tax discussions is the use of average or median tax rates. As Attorney Bethel points out, property tax rates in California vary widely due to multiple factors, including partial reassessments and propositions 13 and 19. While some viewers find average tax rates meaningless, they're often the only practical way to summarize a diverse landscape of tax rates.

Impact of Accessory Dwelling Units (ADUs)

Accessory Dwelling Units (ADUs) have gained popularity in California due to the housing shortage and rising property values. These secondary homes, often known as granny flats or in-law units, have prompted questions about their impact on property reassessments. Attorney Bethel clarifies that if an adult child inherits a property with an ADU and has lived on the property, their residency status doesn't change based on whether they reside in the ADU or the main house. However, for multi-family properties like duplexes, triplexes, or quadplexes, there is likely to be a partial reassessment based on the structure's layout.

Adding Children to Title and Joint Tenancy

Adding children to the title of a property as joint tenants is a common practice for avoiding probate, but it can lead to unintended tax consequences. A viewer's question about joint tenancy highlighted the risks, especially when involving disabled children. Attorney Bethel advises against simply adding children to the title, as it can complicate matters like capacity and tax basis. He suggests that it's often in the child's best interest to inherit the property to benefit from a stepped-up tax basis, minimizing capital gains taxes upon sale.

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Sibling-to-Sibling Transfers and Reassessment

A question about transfers from sibling to sibling sparked a clear response from Attorney Bethel: sibling-to-sibling transfers are always reassessed, regardless of propositions 13 and 19. He shared an example where a transfer was considered a sibling-to-sibling transaction due to how it was structured, emphasizing the need for careful planning and legal advice.

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Veterans and Property Taxes in California

For disabled veterans, California law allows exemption from property taxes if they are 100% compensated by the Department of Veteran's Affairs. This benefit extends to widowed spouses, provided they don't remarry. However, this exemption does not apply to property transfers, where standard property tax rules come into play. It's essential for veterans to understand the limitations and plan accordingly.

Silver Linings in California Property Tax Laws

Despite the complexity and frustrations associated with California's property tax laws, there are potential benefits. While property taxes increase by 2% annually, property values often rise much faster. This encourages property owners to retain their assets, which can lead to long-term financial gains. However, Attorney Bethel notes that this system also disincentivizes development and contributes to the housing shortage.

Conclusion

California's property tax laws and Proposition 19 raise many questions and require careful consideration. The insights provided by Attorney Bethel offer valuable guidance on navigating these complexities. It's crucial to stay informed, seek professional advice, and plan strategically to avoid unintended tax liabilities and legal complications. If you have further questions, Bethel Law is here to help you make sense of California's property tax landscape.

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