The Real Deal Los Angeles

California law cost LA $280M in tax revenue in 2017

Prop 58 allows homeowners who inherit to keep taxes stable
August 17, 2018 02:05PM

Malibu homes, Thomas Hannigan (Credit: iStock)

Hundreds of thousands of California residents are paying 1970s-era property taxes on multi-million-dollar homes thanks to a law that essentially allow taxes to be passed down among generations.

Many of these homeowners, sometimes well-off individuals like actors and politicians, also use these properties as second homes, or rentals, the Los Angeles Times reported. In L.A. County, roughly 63 percent of homes that qualify for the break are used for investment purposes.

Just last year, the provision, known as Proposition 58, cost L.A. County more than $280 million in property tax revenue, according to an analysis by the LAT. Overall, it’s deprived schools, cities and counties of billions of dollars in revenue.

Homeowners in California largely benefit from Proposition 13, a 1978-passed law that strictly limits the amount that taxes can increase each year. It limits taxes to 1 percent of a home’s taxable value, which is based on the year it was purchased, while also capping hikes at 2 percent a year. Once a home is sold, property tax bills are recalculated.

But Proposition 58, which was passed eight years later, has created a sort of loophole for properties that stay within the family. The law allows parents to pass a home on to their children and grandchildren without having to go through a reassessment, meaning future generations will inherit the lower property tax bill no matter how much the property goes up in value.

Actor Jeff Bridges, for example, has saved over $300,000 in property taxes thanks to the law. He and his brothers inherited a Malibu beach pad from their mother, who bought it in the 1950s. They paid just $5,700 in property tax bills last year, and are now renting it for nearly $16,000 per month.

The inheritance tax break, authored by former state assemblyman Thomas Hannigan, has contributed to a drastic inequality in the state, Assemblyman David Chiu told the LAT. It’s especially been tough on the lower and middle classes, who are already struggling to buy homes amid rising prices. [LAT] — Natalie Hoberman