Owners of $1 Million-Plus Homes Benefit Most From California Tax Break

Spelling Manor in Holmby Hills
Spelling Manor in Holmby Hills

When rich folks get tax breaks that other Californians don't enjoy, it's essentially a transfer of wealth from the poor, working and middle classes to the wealthy. And even in the liberal Golden State, it happens more than you think. As our schools, roads and social services suffer, billionaires get tax breaks, Hollywood moguls get tax breaks, and the owners of the state's most valuable real estate get tax breaks.

A new analysis of the effects of Proposition 13 which caps property taxes at 1 percent of a home's purchase price and limits annual increases to 2 percent  concludes that, last year, longer-term owners of more expensive homes have benefited the most from this 1978 tax revolt at the ballot box. Proposition 13 takes appreciation out of the equation, so a new homeowner can end up paying many times more than an old-timer. Those who stay put pay taxes based on old-school real estate value instead of today's insane home prices.

Real estate listings site Trulia looked at home values and tax data for 2015 to find the initiative's latest winners and losers. The analysis finds that longer-term home owners who benefit the most from the tax break tend to live in some of the wealthiest neighborhoods in California — particularly along the coast. In fact, Trulia found that median home value in the top 10 cities that have the lowest effective tax rates is $1.2 million.

"Residents in cities with higher home values and a higher share of long-term residents pay the lowest effective property tax rates in the state," according to a statement from Trulia. "And for the most part, these cities lie in expensive coastal areas of the San Francisco Bay Area and Coastal Southern California."

In effect, Proposition 13 blocked billions of dollars that would have flowed to cities and school districts, arguably contributing to decline of Golden State public education. And it happened as districts were transformed by by waves of immigrants from Mexico, Central America and Asia — folks who have helped make California a state where minorities outnumber whites.

Proponents of 13, including the Howard Jarvis Taxpayers Association, argue that if property taxes were based on current (appreciated) values in the go-go California real estate market, many homeowners would be forced to sell due to prohibitively high tax bills. According to the HJTA's website, the proposition "allowed millions of Californians to keep their homes."

The group's president, Jon Coupal, says the Trulia analysis states the obvious.

"In essence I think the study is a whole bunch of nothing," he says. "All it really tells us is homeowners who live in the most desirable neighborhoods tend to move less often."

The highest 2015 median home value on that top 10 tax-break list was in Malibu: $2.72 million. Beverly Hills' median home value, $2.59 million, was the second highest on the list.

The losers in the tax-break game were homeowners in "newer, less expensive inland areas," where home values tended to register below $350,000. In fact, seven of the top 10 cities for the highest effective property tax rates were in the Great Recession-wracked Inland Empire (see chart below).

"New homeowners in California are taxed disproportionately higher than existing residents," according to the analysis. "Residents in expensive coastal cities pay noticeably lower tax rates than residents in cheaper inland cities, although some of the disparity is likely due to differences in where long-time Californians live compared to new arrivals."

Coupal of HJTA says he expects the state legislature, which was handed a Democratic supermajority on Election Day, to tamper with Proposition 13. A supermajority vote can result in a new initiative without customary voter signatures.

"I fully anticipate there will be some proposals to attempt to weaken Proposition 13," he says.

*The chart (below) on cities with the highest effective tax rates has been replaced with an updated version. A Trulia spokeswoman says the original chart, published here previously, contained some erroneous data.

Owners of $1 Million-Plus Homes Benefit Most From California Tax Break
Trulia
Owners of $1 Million-Plus Homes Benefit Most From California Tax Break
Trulia

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