Nearly four years into California’s new property tax transfer law, just over half of applicants are being approved.
From July 1, 2022, to June 30, 2023, the most recent data available, 56% of applications were approved statewide for homeowners to maintain their primary residence rates under Proposition 19.
Voters in 2020 approved Prop. 19, which allows property owners and those who inherit a primary residence to transfer their base tax rates, either from a previous home or one for which they are assuming ownership.
In some cases, transferring a low tax rate could mean the difference between qualifying for a loan or not. This is especially true for wildfire victims who lost their homes. Without the lower tax rate, it could also mean some children have to sell inherited properties because they can’t afford the property taxes at the reassessed value. It’s why estate taxes were nicknamed the “death tax.”
Proposition 19 allows homeowners 55 and older, the severely disabled or the victims of a wildfire to take their lower Proposition 13 tax base with them (up to three times) anywhere in California.
A key exception to the tax reassessment is if the home was inherited by a child who plans to make it their primary residence within the first year, then the property will not be reassessed. Done right, Prop. 13 property tax of the parents (or grandparents) can be transferred to the children or grandchildren, in this scenario.
Separately, property such as residential and commercial rentals and second homes get reassessed at current property tax rate values when they are passed down to children from the last surviving parent or grandparent.
So, why are 44% of applicants being rejected trying to transfer the low property tax rates?
“They file improperly. They don’t fill out the homeowner’s exemption,” said Maria Melchor, Tax Advocate, Orange County Assessors office. “Or it’s not their main residence.”
Not being a main residence is probably a polite way to say many applicants are lying and trying to game the system. If you are not living on the property or planning on living there within the first year, then don’t apply.
These tax transfer transactions are tracked by your Social Security number. In other words: No double-dipping (trying to claim two primary residences) for the base year value transfer. You will get caught.
The base-year value transfer doesn’t automatically happen. Applicants must file a BOE form in the county in which the property is located within three years of the date you purchased or completed construction on the replacement home. There are several BOE forms. Ask your assessor’s office which form is relevant to your specific situation.
In the most recent fiscal year, 82,422 applications to transfer a base tax rate were made statewide, and 46,180 were granted. So far this year, 48 of the 58 counties reported their transfer activity to the BOE, according to Peter Kim, the agency’s chief communications officer.
Locally, Los Angeles County had 5,899 applications filed and 2,097 granted. In Orange County, it was 5,115 applications filed and 3,394 granted. In the Inland Empire, Riverside County had 2,278 applications and 927 granted, while San Bernardino County had 903 applications and 404 granted. San Diego County did not fully report both application types, but had 1,586 applications and 1,405 granted.
Applicants who were rejected can appeal. Statewide, appeals fees range from no cost to $200, depending on the county.
The appeals fee for Los Angeles County is $46. It’s free in Orange County, while in Riverside County it’s $30. In San Bernardino County it’s $45, and San Diego County is free.
“I will never charge a fee for an appeal,” said Claude Parrish, Orange County’s assessor.
The obvious point is, if you think you were rejected in error, appeal the decision.
Below are some answers to some open questions from my Feb. 16, 2021, column: Proposition 19 creates confounding questions, gotcha rules. All of the answers came from Steve Whitmore, public information officer at the Los Angeles County Assessor’s Office.
Q: Just how long can children occupy a departed family member’s residence to maintain the lower property tax rate?
A: You have to live there forever.
Q: Do all of your children have to occupy the former residence?
A: Just one child.
Q: Can a child transfer the base rate to another child?
A: Yes
Q: Can parents transfer consecutive family homes?
A: Yes
The skeptic in me wonders just how many folks missed out on Proposition 13 benefits because of Proposition 19. How many folks were denied because of a filing error? Or perhaps they didn’t realize this is not automatic, and an application must be made.
Next week, I will explain how to calculate your base year value transfer if you fit into one of these eligible categories, and you are purchasing a more expensive property than your departing residence sales price.
Freddie Mac rate news
The 30-year fixed rate averaged 6.54%, 10 basis points higher than last week. The 15-year fixed rate averaged 5.71%, 8 basis points higher than last week.
The Mortgage Bankers Association reported a 6.7% mortgage application decrease compared with one week ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $613 more than this week’s payment of $4,815.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.75%, a 15-year conventional at 5.5%, a 30-year conventional at 6.25%, a 15-year conventional high balance at 5.99% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 6.625% and a jumbo 30-year fixed at 6.5%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye-catcher loan program of the week: A 30-year mortgage, with 30% down locked for the first 5 years at 5.875 with 1 point cost.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or [email protected] .