Prop. 13: Real Property Assessments: Past, Present & Future.

• Author: Lewis, Diana L.

Proposition 13 will celebrate its 40-year anniversary in November. The "Peoples Initiative to Limit Property Taxation" decreased money going to the Golden State by 3.1 percent of total revenue (from $10.3 billion in 1978, then falling to $4.9 billion once passed). Since then, this revenue deficit was made up by population increases, as well as increases in sales and income taxes.

Future

Come November, however, there are new initiatives that will be voted upon that could change the very fabric of real property tax assessment and Prop. 13:

* Amend Prop. 13 so homeowners aged 55 and older or severely disabled can transfer their property tax base to a new residence in any county in California (instead of the 11 counties currently participating) at any sales price and as many times as they'd like (backed by the California Association of Realtors).

* Repeal of Prop. 13 limitations for commercial properties (backed by ACLU and California Federation of Teachers) with a focus on raising billions for schools and programs per year.

* California Association of Realtors is also circulating a proposed initiative that would change the legal entity rules. Under its most recent proposal, a change in ownership would occur when at least 90 percent (rather than the current 50 percent) of the direct or indirect ownership interests of a legal entity have been cumulatively transferred.

Present: Mechanics of Preventing Real Property Re-assessment

As estate planners, you want your clients to avoid changes in ownership to keep any property owner's property taxes low. County tax assessors assess all California real estate on the property's base year value, adjusted annually for inflation and capped at 2 percent of the prior year's value (or adjusted down for any reductions in value). The base year value is defined as the market value as of the later of March 1, 1975, or the most recent change in ownership or construction of new improvements.

When a change in ownership occurs, the 2 percent cap is removed and the property is reassessed at the current--and most likely higher--fair market value. So, a change in ownership is the key that triggers increased property taxes.

Some real property transfers are exempt from reassessment. There are several crucial change in ownership exclusions (some of which require the property owner to complete an application or file a claim form within certain deadlines):

* Inter-Spousal Transfers of Real Property, Sec. 63: Transfers of real...