We, California’s small property landlords, serve a vital function for the state by helping to facilitate affordable housing. But we’re under attack and in more ways than you may know. Recent changes to the state Constitution will likely force many of us out of business when family properties transfer from one generation to the next. 

Why? Proposition 19. Previously, under the state constitution, property transfers between parents and children, and sometimes grandparents and grandchildren, were excluded from reassessment. These family members could transfer a home of any value and up to $1 million in assessed value of other property, such as a small business or rental property. 

Now, because of Prop. 19, only a principal residence that the inheriting child occupies as his or her permanent primary residence is eligible for an exclusion from reassessment. Unless the new owner can move in within one year, the property is reassessed to market value. Business properties and rental properties lose the protection entirely. 

Prop. 19 passed very narrowly after a costly ad campaign that emphasized its benefits for seniors, wildfire victims and disabled homeowners while completely avoiding the issue of the effect on intergenerational transfers. And if it was mentioned, it was explained away as closing “loopholes exploited by East Coast investors, celebrities, and wealthy trust fund heirs.” The reality though, is it’s an extremely regressive tax that hurts normal middle-class Californians and their families – really any property owner with children. 

Our family is one of those. We’ve owned and operated a duplex for 35 years in San Francisco. We’re good landlords and have wonderful tenants. The issue is that our property taxes will rise roughly 300 percent when the property now transfers from one generation to the next. Our tenants are at roughly 50 percent and 75 percent of current market rents due to the constraints of rent control. We raise the rents the allowable amount every year, and yet still find ourselves way under market. We’ve always been OK with this, however, due to the equalizing effect of a stable tax base through Prop. 13. The knowledge that this stable tax base could be passed onto future generations had always kept us in good stead. 

Prop. 19 changed that. When your primary operating expenses rise 300 percent while your income remains flat, you’re probably going out of business. We will likely be forced to sell. To make matters worse, this may incentivize some small property owners to find creative ways to displace their low-rent tenants. Neither option sounds particularly attractive. 

The good news is that a solution may be on the ballot in 2022. The Howard Jarvis Taxpayers Association has filed an initiative to repeal the changes that Prop. 19 made to the intergenerational transfer and restore the law back to the way it was before. To further protect families, the measure adds an adjustment for inflation to the exclusion from reassessment for a limited amount of other property in addition to the primary residence. The first $2.4 million of assessed value of a rental property, such as a duplex, would be excluded from reassessment when passed from parent to child. 

To get this initiative on the ballot, HJTA needs our help. Find out how at: HJTA.org/RepealTheDeathTax.