California Sen. Hill Intros Bill To Close Property Tax Loopholes

SAN MATEO, CA -- California Sen. Jerry Hill, D-San Mateo, introduced legislation Tuesday to end the state's property tax inheritance break for people who don’t live in the house left to them by parents or grandparents. The measure closes a loophole that allows the benefactors to rent out the home without paying what's due in property taxes.

Senate Constitutional Amendment 3, would require a two-thirds majority vote by both houses of the state Legislature for the measure to be placed on the ballot in 2020. Hill introduced SCA 3 with Assemblymember Rob Bonta, D-Oakland, as principal coauthor and Assemblymembers Laura Friedman, D-Glendale, Mike A. Gipson, D-Carson, and Bill Quirk, D-Hayward, as co-authors.

“We need to close the legal loophole that has allowed some individuals to dodge thousands of dollars in property taxes while reaping rental income from homes they have inherited and do not use as their primary residence,” said Hill, who represents San Mateo and Santa Clara counties. “The practice robs communities of property taxes that fund vital public services for residents. SCA 3 is about stopping people who game the system and use their residential property inherited from their parents as a cash cow while avoiding their fair share of property taxes.”

The state’s Legislative Analyst Office explains the problem as one that involves the transfer of property to a new owner. Currently, special rules are in place that allow for inherited properties designated to go to children or grandchildren to be assessed a lower taxable property value. In 1986, voters approved Proposition 58, a legislative constitutional amendment, which excludes certain property transfers between parents and children from reassessment. In 1996, Proposition 193 extended the exclusion to transfers between grandparents and grandchildren if the grandchildren’s parents are dead.

SCA 3 responds by proposing to modify the property tax inheritance exclusion law. Individuals who inherit property from their parents or grandparents and want to also inherit the assessed value of the property must make that home their primary residence within 12 months of inheriting it. The 12-month period gives the heirs time to decide whether to move into the home and make arrangements based on their decision. If they decide to rent out the home, the property would be reassessed to market rate and the property taxes would be adjusted accordingly.

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