What’s the Skinny on CA Prop 5?
The 2018 Midterm Elections are right around the corner. As always it is so difficult to sort through all the information, mis-information and lack of information to decide where you will vote on certain issues. I’ve done a little research for you on California’s Proposition 5 to hopefully help you sort through the information a little more quickly
Proposition 5 implements a minor but significant change to 1978’s Prop 13 which reduced property taxes by about 57%. Proposition 13 limited the rate at which property taxes can increase. If you have owned your home for a long time you are definitely paying a tax rate below what your home would currently be assessed at. Often times homes are re-assessed if a permit is pulled so that will change the tax rate but if there has been no permitted work done on a home most likely tax rates are low. When you purchase a new home that home is assessed close to the current market rates and will change the property tax base a homeowner pays. Currently counties, not the state, decide whether homeowners can transfer their tax assessment and only a few counties allow that to happen. California Proposition 5 would mandate that tax assessments be transferred for seniors, those on disability, and those who have lost their homes due to natural disasters.
The California Association of Realtors drafted the measure with the intentions of addressing the housing crisis by increasing the number of housing units on the market. The thought behind it is that those fearing an increase in taxes from a higher assessment would be less likely to sell. Proposition 5 would therefore give them the incentive and ability to sell.
Opponents of CA Prop 5 argue it would incentivize affluent senior homeowners to take advantage of permanently low taxes and the players that would ultimately would be hurt would be California schools and other public services. They argue that when tax rates are permanently low for those who can afford to pay taxes then it would disrupt the stream of funds to schools and other services which rely on property taxes for funding. Although less affluent seniors would be benefitted by this measure, it is argued that affluent seniors are the tax bracket least deserving of this tax break. They have already benefitted from low property taxes and had the time to build up equity in their homes. Those who would benefit most from Prop 5 would be the least affected by the cuts to services that are funded by property taxes and that seniors are already allowed to transfer their property tax base one time in their life (this is different from a 1031 tax-deferred exchange). Opponents also argue that Prop 5 does nothing to address the shortage of housing and increasing home prices that are the real issue.
No matter what your position may be on this and other issues, exercise your rights and go out and vote! We are fortunate to live in a democratic society where all citizens have the right to vote and it is an insult to those who do not have those rights to not exercise our rights.
