Other Voices: How props 15, 19 may affect tax and estate planning

This article is not intended to be tax advice. Readers should contact their personal tax adviser regarding their specific circumstances. The following is intended to be an overview of state propositions 15 and 19 for educational purposes.

Proposition 15, on the Nov. 3 ballot, is called the “split roll” initiative. It would change Proposition 13 to reset the property-tax assessment amount on commercial and industrial property to current value. This would substantially increase the property tax collected by county assessors. Proposition 15 specifically states it does not apply to residential property.

Commercial and/or industrial property owned by a taxpayer with a value of $3 million or less is exempt from reassessment. Also, businesses would be exempt from paying property taxes on equipment up to $500,000.

If passed, Proposition 15 is expected to ultimately raise between $8 billion and $12.5 billion. The funds would be directed to schools and community colleges, as well as county assessor offices to offset the cost of implementation.

A major concern with Proposition 15 is that many businesses – large and small – do not own the property on which they operate. They have leases specifying that property taxes will be passed through and paid by the tenant. It is reported that many small businesses will be unable to afford the increase, or it will result in higher prices to the consumer. The opposing argument is that landlords can only charge what the market allows and will not be able to pass through much of the increase.

Proposition 19 expands the existing Proposition 90, which allows taxpayers over age 55 – or who are severely disabled or whose homes were destroyed by wildfire or disaster – to sell their primary residence and purchase another primary residence of equal or lesser value within two years and carry over their Proposition 13 tax basis. They can only do this once, and only within the same county or one off the list of 10 counties in California participating in Proposition 90.

Proposition 19 would change this. If passed, taxpayers over age 55 would be able to sell and carry over their Proposition 13 tax basis three times, instead of once. They could buy in any county in California and could buy a more expensive property – in which case the tax would only increase by the increased value.

In addition, Proposition 19 would repeal the parent-to-child – or grandparent-to-grandchild – carryover of Proposition 13 tax basis upon inheritance, unless the heir uses the property as their primary residence.

This is an overview of these propositions and is not intended to be all-inclusive. Every voter needs to become educated as to how these proposed law changes could affect their current taxes and their estate plan.

Lonnie Gary is managing partner at Young, Craig & Co., a CPA firm based in Mountain View. Dennis Young, co-publisher of the Town Crier, is a partner in the firm.

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