Korean IPA(Insurance & Pension Actuary)

Los Angeles Times, California Homeowners Get to Pass Low Property Taxes to their Kids. It's Proved Highly Profitable to an Elite Group:

Actors Jeff and Beau Bridges, along with their sister, own a four-bedroom Malibu home with access to a semi-private beach and panoramic views of the Pacific Ocean. They inherited it from their mother, who had owned the house since the late 1950s when their father, Lloyd Bridges, first made it big in Hollywood.

Earlier this year, they advertised the “stunning Malibu dream” for rent at $15,995 a month — a hefty price tag for a house that has a property tax bill of less than half that.

Like other descendants of a generation of California homeowners, the Bridges siblings enjoy a significant perk that keeps their property tax bill low. Part of that is thanks to Proposition 13, which has strictly limited property tax increases since 1978. But they also benefit from an additional tax break, enacted eight years later, that extended those advantages to inherited property — even inherited property that is used for rental income.

California is the only state to provide this tax break, which was designed to protect families from sharp tax increases on the death of a loved one. Without it, proponents argued at the time it passed, adult children could have faced potentially huge bills, making it financially prohibitive to live in their family homes.

But a Los Angeles Times analysis shows that many of those who inherit property with the tax breaks don’t live in them. Rather, they use the homes as investments while still taking advantage of the generous tax benefits.

In Los Angeles County, as many as 63% of homes inherited under the system were used as second residences or rental properties last year, according to the Times’ analysis. ...

The inheritance tax break, The Times has found, has allowed hundreds of thousands — including celebrities, politicians, out-of-state professionals and some of California’s most prominent families — to avoid paying the higher taxes owed by newer homeowners. The tax break has deprived school districts, cities and counties of billions of dollars in revenue.

The Bridges siblings, who declined to comment for this article, would have paid an additional $300,000 in property taxes if the house had been reassessed when they inherited it in 2009, according to a Times calculation. In Los Angeles County, the tax benefit cost schools, cities and county government more than $280 million in revenue last year, the analysis shows.

One effect of Proposition 13 and the inheritance tax break has been to create generational inequities between those who have owned homes and those who haven’t. The laws place no limits on how many descendants can take advantage of the benefit, so future generations of Californians whose ancestors purchased houses decades ago will continue to pay property taxes based on values established in the 1970s.

The laws have helped many families stay in their homes without onerous tax burdens. But soaring property values across California also have created windfalls for longtime homeowner families that even the biggest backers of these laws didn’t expect. ...

To receive the benefit, it isn’t even necessary to live in California. An attorney in Boca Raton, Fla., has advertised the two-bedroom Santa Monica home he inherited from his parents near the Brentwood Country Club for $5,900 a month, which would pay his annual property taxes in a little more than two weeks. ...

In Malibu, Hollywood Hills and Playa del Rey, more than 80% of owners report their inherited property is not their primary residence, according to The Times’ analysis. Families who have owned property the longest are also more likely to rent the houses out or use them as second residences, the records show. In L.A. County, three-fourths of heirs whose parents owned homes at the time of Proposition 13’s 1978 passage don’t report the property as their primary home, The Times found.

The tax privileges afforded current homeowner families stand in contrast to the higher taxes many newcomers face. The Bridges children had a $5,700 tax bill last year for their Malibu home now estimated by Zillow to be worth $6.8 million. If someone bought the home at that price today, they’d pay more than $76,000 annually in property taxes.