What will the repeal of Prop 13 do to the market?

[UCGal]

I had to figure out what you guys were talking about with the step-up basis.

(I’m an engineer, not an investor… and I don’t sell houses a lot so I don’t think about capital gains on a daily basis.)

I’m trying to figure out what you guys are suggesting.
– If a person inherits a house (free and clear) the cost basis is that of the time of inheritance. This is done for establishing whether estate taxes need to be paid. In fact this can happen several times on a home if the estate is large – estate taxes may kick in on half the house if half the estate is above the threshold when the first spouse dies and they don’t have a trust.

– In my case I paid full market for the house. My dad was still alive. I’m not an only child. The proceeds were his and eventually I got some back as my portion of his estate. But he could have gone to Vegas and bet it all on Red. Prop 58 does not address the form of transfer – sale, inheritance, gift. All are allowed in a prop 58 transfer. Prop 58 does not address estate taxes. The feds and CA still require estate taxes if the value of the estate (including the market value of a home if there is one) are above a threshold.

I guess I’m not too worried about capital gains when I sell, since I plan on living here till I die… But to suggest that the cost basis should be different than what I paid (full market value), I don’t get it.

Or am I misinterpreting what you guys mean about the step up cost basis. Speak slowly when you explain… I’m not an accountant or investor. 😉

[paramount]

Don’t blame Proposition 13; blame the public-employee unions

By Paul Mulshine/The Star Ledger

A lot of liberals love to believe that California is starved for revenue thanks to Proposition 13. It’s not. Read this piece by William Voegeli as he explains what should be obvious to any thinking person: Government grows infinitely if not subject to some sort of check.

According to liberals in politics, journalism, and academia, Proposition 13 is the reason for California’s worsening fiscal nightmare and the declining quality of the state’s public services, and the motives behind it were deplorable. And because Prop. 13 ignited a national tax revolt that remains potent, the Left also blames the measure for much of what it thinks has gone wrong in American political life generally over the past three decades.
Yet no matter how often their moral and intellectual “superiors” denounce them, California taxpayers continue to insist that the problem isn’t their purported stinginess but their government, which makes lousy use of the considerable funds that it continues to receive. On this point, the voters aren’t being stubborn, greedy, or stupid. The voters are right.

Voegeli goes on to note that California’s tax receipts did not drop after the passage of Prop. 13 in 1978 but actually rose:

A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before—and that they were half again as high in 2000 as in 1978.

And then there’s the question of why Califnornians don’t repeal Prop. 13 if it’s so bad:

Though California has become one of America’s most liberal states in other regards, Proposition 13 remains “the third rail of California government,” as the Berkeley political scientist Jack Citrin wrote last year. “In the throes of the budget crisis of 2008 and increasing fiscal disarray, there was no serious talk of reforming the property tax system.” A 2008 survey by the Public Policy Institute of California showed that Californians continue to favor Prop. 13 by a two-to-one margin. Even 56 percent of self-identified Democrats said it was “mostly a good thing,” compared with just 31 percent who said it was “mostly a bad thing.”
Voegeli goes on to note that even blue-staters recognize that “Not just California’s schoolteachers but state and local employees as a whole receive higher compensation than their counterparts in the rest of the country, Census Bureau data show.”

And he refers back to his prior article on the unfortunate fact that services to the public do not necessarily increase as taxes rise.

I have made that point numerous times myself. Many well-meaning but not deep-thinking conservatives accuse the Democrats of wanting to turn America “socialist.” But the real problem is that they want socialism only for themselves, i.e. those on the government payroll. And they also need to spend money on the lower classes to entice them to vote for the job-keepers. As for the rest of us, we have to make a living in the capitalist world – without the cradle-to-grave benefits public employees have.
Voegeli made that point in the prior article titled “The Big-Spending, High-Taxing, Lousy-Services Paradigm.”
In it, he stated:
Whatever theoretical claims are made for imposing high taxes to provide generous government benefits, the practical reality is that these public goods are, increasingly, neither public nor good: their beneficiaries are mostly the service providers themselves, and their quality is poor.

Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.

[paramount]

Don’t blame Proposition 13; blame the public-employee unions

By Paul Mulshine/The Star Ledger

A lot of liberals love to believe that California is starved for revenue thanks to Proposition 13. It’s not. Read this piece by William Voegeli as he explains what should be obvious to any thinking person: Government grows infinitely if not subject to some sort of check.

According to liberals in politics, journalism, and academia, Proposition 13 is the reason for California’s worsening fiscal nightmare and the declining quality of the state’s public services, and the motives behind it were deplorable. And because Prop. 13 ignited a national tax revolt that remains potent, the Left also blames the measure for much of what it thinks has gone wrong in American political life generally over the past three decades.
Yet no matter how often their moral and intellectual “superiors” denounce them, California taxpayers continue to insist that the problem isn’t their purported stinginess but their government, which makes lousy use of the considerable funds that it continues to receive. On this point, the voters aren’t being stubborn, greedy, or stupid. The voters are right.

Voegeli goes on to note that California’s tax receipts did not drop after the passage of Prop. 13 in 1978 but actually rose:

A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before—and that they were half again as high in 2000 as in 1978.

And then there’s the question of why Califnornians don’t repeal Prop. 13 if it’s so bad:

Though California has become one of America’s most liberal states in other regards, Proposition 13 remains “the third rail of California government,” as the Berkeley political scientist Jack Citrin wrote last year. “In the throes of the budget crisis of 2008 and increasing fiscal disarray, there was no serious talk of reforming the property tax system.” A 2008 survey by the Public Policy Institute of California showed that Californians continue to favor Prop. 13 by a two-to-one margin. Even 56 percent of self-identified Democrats said it was “mostly a good thing,” compared with just 31 percent who said it was “mostly a bad thing.”
Voegeli goes on to note that even blue-staters recognize that “Not just California’s schoolteachers but state and local employees as a whole receive higher compensation than their counterparts in the rest of the country, Census Bureau data show.”

And he refers back to his prior article on the unfortunate fact that services to the public do not necessarily increase as taxes rise.

I have made that point numerous times myself. Many well-meaning but not deep-thinking conservatives accuse the Democrats of wanting to turn America “socialist.” But the real problem is that they want socialism only for themselves, i.e. those on the government payroll. And they also need to spend money on the lower classes to entice them to vote for the job-keepers. As for the rest of us, we have to make a living in the capitalist world – without the cradle-to-grave benefits public employees have.
Voegeli made that point in the prior article titled “The Big-Spending, High-Taxing, Lousy-Services Paradigm.”
In it, he stated:
Whatever theoretical claims are made for imposing high taxes to provide generous government benefits, the practical reality is that these public goods are, increasingly, neither public nor good: their beneficiaries are mostly the service providers themselves, and their quality is poor.

Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.

[paramount]

Don’t blame Proposition 13; blame the public-employee unions

By Paul Mulshine/The Star Ledger

A lot of liberals love to believe that California is starved for revenue thanks to Proposition 13. It’s not. Read this piece by William Voegeli as he explains what should be obvious to any thinking person: Government grows infinitely if not subject to some sort of check.

According to liberals in politics, journalism, and academia, Proposition 13 is the reason for California’s worsening fiscal nightmare and the declining quality of the state’s public services, and the motives behind it were deplorable. And because Prop. 13 ignited a national tax revolt that remains potent, the Left also blames the measure for much of what it thinks has gone wrong in American political life generally over the past three decades.
Yet no matter how often their moral and intellectual “superiors” denounce them, California taxpayers continue to insist that the problem isn’t their purported stinginess but their government, which makes lousy use of the considerable funds that it continues to receive. On this point, the voters aren’t being stubborn, greedy, or stupid. The voters are right.

Voegeli goes on to note that California’s tax receipts did not drop after the passage of Prop. 13 in 1978 but actually rose:

A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before—and that they were half again as high in 2000 as in 1978.

And then there’s the question of why Califnornians don’t repeal Prop. 13 if it’s so bad:

Though California has become one of America’s most liberal states in other regards, Proposition 13 remains “the third rail of California government,” as the Berkeley political scientist Jack Citrin wrote last year. “In the throes of the budget crisis of 2008 and increasing fiscal disarray, there was no serious talk of reforming the property tax system.” A 2008 survey by the Public Policy Institute of California showed that Californians continue to favor Prop. 13 by a two-to-one margin. Even 56 percent of self-identified Democrats said it was “mostly a good thing,” compared with just 31 percent who said it was “mostly a bad thing.”
Voegeli goes on to note that even blue-staters recognize that “Not just California’s schoolteachers but state and local employees as a whole receive higher compensation than their counterparts in the rest of the country, Census Bureau data show.”

And he refers back to his prior article on the unfortunate fact that services to the public do not necessarily increase as taxes rise.

I have made that point numerous times myself. Many well-meaning but not deep-thinking conservatives accuse the Democrats of wanting to turn America “socialist.” But the real problem is that they want socialism only for themselves, i.e. those on the government payroll. And they also need to spend money on the lower classes to entice them to vote for the job-keepers. As for the rest of us, we have to make a living in the capitalist world – without the cradle-to-grave benefits public employees have.
Voegeli made that point in the prior article titled “The Big-Spending, High-Taxing, Lousy-Services Paradigm.”
In it, he stated:
Whatever theoretical claims are made for imposing high taxes to provide generous government benefits, the practical reality is that these public goods are, increasingly, neither public nor good: their beneficiaries are mostly the service providers themselves, and their quality is poor.

Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.

[paramount]

Don’t blame Proposition 13; blame the public-employee unions

By Paul Mulshine/The Star Ledger

A lot of liberals love to believe that California is starved for revenue thanks to Proposition 13. It’s not. Read this piece by William Voegeli as he explains what should be obvious to any thinking person: Government grows infinitely if not subject to some sort of check.

According to liberals in politics, journalism, and academia, Proposition 13 is the reason for California’s worsening fiscal nightmare and the declining quality of the state’s public services, and the motives behind it were deplorable. And because Prop. 13 ignited a national tax revolt that remains potent, the Left also blames the measure for much of what it thinks has gone wrong in American political life generally over the past three decades.
Yet no matter how often their moral and intellectual “superiors” denounce them, California taxpayers continue to insist that the problem isn’t their purported stinginess but their government, which makes lousy use of the considerable funds that it continues to receive. On this point, the voters aren’t being stubborn, greedy, or stupid. The voters are right.

Voegeli goes on to note that California’s tax receipts did not drop after the passage of Prop. 13 in 1978 but actually rose:

A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before—and that they were half again as high in 2000 as in 1978.

And then there’s the question of why Califnornians don’t repeal Prop. 13 if it’s so bad:

Though California has become one of America’s most liberal states in other regards, Proposition 13 remains “the third rail of California government,” as the Berkeley political scientist Jack Citrin wrote last year. “In the throes of the budget crisis of 2008 and increasing fiscal disarray, there was no serious talk of reforming the property tax system.” A 2008 survey by the Public Policy Institute of California showed that Californians continue to favor Prop. 13 by a two-to-one margin. Even 56 percent of self-identified Democrats said it was “mostly a good thing,” compared with just 31 percent who said it was “mostly a bad thing.”
Voegeli goes on to note that even blue-staters recognize that “Not just California’s schoolteachers but state and local employees as a whole receive higher compensation than their counterparts in the rest of the country, Census Bureau data show.”

And he refers back to his prior article on the unfortunate fact that services to the public do not necessarily increase as taxes rise.

I have made that point numerous times myself. Many well-meaning but not deep-thinking conservatives accuse the Democrats of wanting to turn America “socialist.” But the real problem is that they want socialism only for themselves, i.e. those on the government payroll. And they also need to spend money on the lower classes to entice them to vote for the job-keepers. As for the rest of us, we have to make a living in the capitalist world – without the cradle-to-grave benefits public employees have.
Voegeli made that point in the prior article titled “The Big-Spending, High-Taxing, Lousy-Services Paradigm.”
In it, he stated:
Whatever theoretical claims are made for imposing high taxes to provide generous government benefits, the practical reality is that these public goods are, increasingly, neither public nor good: their beneficiaries are mostly the service providers themselves, and their quality is poor.

Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.

[paramount]

Don’t blame Proposition 13; blame the public-employee unions

By Paul Mulshine/The Star Ledger

A lot of liberals love to believe that California is starved for revenue thanks to Proposition 13. It’s not. Read this piece by William Voegeli as he explains what should be obvious to any thinking person: Government grows infinitely if not subject to some sort of check.

According to liberals in politics, journalism, and academia, Proposition 13 is the reason for California’s worsening fiscal nightmare and the declining quality of the state’s public services, and the motives behind it were deplorable. And because Prop. 13 ignited a national tax revolt that remains potent, the Left also blames the measure for much of what it thinks has gone wrong in American political life generally over the past three decades.
Yet no matter how often their moral and intellectual “superiors” denounce them, California taxpayers continue to insist that the problem isn’t their purported stinginess but their government, which makes lousy use of the considerable funds that it continues to receive. On this point, the voters aren’t being stubborn, greedy, or stupid. The voters are right.

Voegeli goes on to note that California’s tax receipts did not drop after the passage of Prop. 13 in 1978 but actually rose:

A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before—and that they were half again as high in 2000 as in 1978.

And then there’s the question of why Califnornians don’t repeal Prop. 13 if it’s so bad:

Though California has become one of America’s most liberal states in other regards, Proposition 13 remains “the third rail of California government,” as the Berkeley political scientist Jack Citrin wrote last year. “In the throes of the budget crisis of 2008 and increasing fiscal disarray, there was no serious talk of reforming the property tax system.” A 2008 survey by the Public Policy Institute of California showed that Californians continue to favor Prop. 13 by a two-to-one margin. Even 56 percent of self-identified Democrats said it was “mostly a good thing,” compared with just 31 percent who said it was “mostly a bad thing.”
Voegeli goes on to note that even blue-staters recognize that “Not just California’s schoolteachers but state and local employees as a whole receive higher compensation than their counterparts in the rest of the country, Census Bureau data show.”

And he refers back to his prior article on the unfortunate fact that services to the public do not necessarily increase as taxes rise.

I have made that point numerous times myself. Many well-meaning but not deep-thinking conservatives accuse the Democrats of wanting to turn America “socialist.” But the real problem is that they want socialism only for themselves, i.e. those on the government payroll. And they also need to spend money on the lower classes to entice them to vote for the job-keepers. As for the rest of us, we have to make a living in the capitalist world – without the cradle-to-grave benefits public employees have.
Voegeli made that point in the prior article titled “The Big-Spending, High-Taxing, Lousy-Services Paradigm.”
In it, he stated:
Whatever theoretical claims are made for imposing high taxes to provide generous government benefits, the practical reality is that these public goods are, increasingly, neither public nor good: their beneficiaries are mostly the service providers themselves, and their quality is poor.

Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.

[jpinpb]

paramount – thanks for that. I’d also state that while the revenues have increased, I’m skeptical whether people’s wages have increased as much (setting aside the supplemental income of HELOCS 😉

[quote=paramount]Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.[/quote]

Amen.

If we did not have Prop 13, our taxes would be extremely high — and no guarantee the State’s finances would be any better.

[jpinpb]

paramount – thanks for that. I’d also state that while the revenues have increased, I’m skeptical whether people’s wages have increased as much (setting aside the supplemental income of HELOCS 😉

[quote=paramount]Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.[/quote]

Amen.

If we did not have Prop 13, our taxes would be extremely high — and no guarantee the State’s finances would be any better.

[jpinpb]

paramount – thanks for that. I’d also state that while the revenues have increased, I’m skeptical whether people’s wages have increased as much (setting aside the supplemental income of HELOCS 😉

[quote=paramount]Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.[/quote]

Amen.

If we did not have Prop 13, our taxes would be extremely high — and no guarantee the State’s finances would be any better.

[jpinpb]

paramount – thanks for that. I’d also state that while the revenues have increased, I’m skeptical whether people’s wages have increased as much (setting aside the supplemental income of HELOCS 😉

[quote=paramount]Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.[/quote]

Amen.

If we did not have Prop 13, our taxes would be extremely high — and no guarantee the State’s finances would be any better.

[jpinpb]

paramount – thanks for that. I’d also state that while the revenues have increased, I’m skeptical whether people’s wages have increased as much (setting aside the supplemental income of HELOCS 😉

[quote=paramount]Proposition 13 didn’t cure that problem in California. But at least it kept people from getting taxed out of their houses to support public employees.[/quote]

Amen.

If we did not have Prop 13, our taxes would be extremely high — and no guarantee the State’s finances would be any better.

[CA renter]

[quote=UCGal]I had to figure out what you guys were talking about with the step-up basis.

(I’m an engineer, not an investor… and I don’t sell houses a lot so I don’t think about capital gains on a daily basis.)

I’m trying to figure out what you guys are suggesting.
– If a person inherits a house (free and clear) the cost basis is that of the time of inheritance. This is done for establishing whether estate taxes need to be paid. In fact this can happen several times on a home if the estate is large – estate taxes may kick in on half the house if half the estate is above the threshold when the first spouse dies and they don’t have a trust.

– In my case I paid full market for the house. My dad was still alive. I’m not an only child. The proceeds were his and eventually I got some back as my portion of his estate. But he could have gone to Vegas and bet it all on Red. Prop 58 does not address the form of transfer – sale, inheritance, gift. All are allowed in a prop 58 transfer. Prop 58 does not address estate taxes. The feds and CA still require estate taxes if the value of the estate (including the market value of a home if there is one) are above a threshold.

I guess I’m not too worried about capital gains when I sell, since I plan on living here till I die… But to suggest that the cost basis should be different than what I paid (full market value), I don’t get it.

Or am I misinterpreting what you guys mean about the step up cost basis. Speak slowly when you explain… I’m not an accountant or investor. ;)[/quote]

LOL, UCGal. 🙂 You can run circles around me where numbers are concerned, to be sure.

Here’s what I was talking about:

When a parent dies and leaves a house to an heir, the heir can “step-up” the cost basis of the house to the current market price. So, if my mom bought a house for $50K in 1970, and she dies in 2005, with the bubble price being $700K, as an heir, I can “step up” the cost basis to $700K and when I sell it for $700K, I pay no capital gains taxes on it. The capital gains are $0.

If I sell it in 2030 for $1MM, the cost basis (or$700K) at mom’s time of death in 2005 remains the cost basis at the time of sale in 2030, and I only owe cap gains taxes on $300K ($1MM proceeds minus $700K cost basis).

Without this stepped up cost basis, if I sold at the time of her death in 2005, I would have to pay capital gains taxes on $650K ($700K proceeds minus $50K cost basis from 1970), rather than pay taxes on zero. If I sold in 2030 at $1MM, we’d be taxed on $950K ($1MM minus $50K), instead of $300K ($1MM minus $700K “stepped-up” basis at time of death).

This is about capital gains, separate from estate taxes.
—————–

I’m agreeing with BG because, as it stands, the heirs get the original cost basis for Prop 13 (so they pay much lower property taxes), and they also get to step up the cost basis for cap gains tax purposes (and paying lower CG taxes as a result). It’s like they step up or down the cost basis, and benefit in both directions. This should not be allowed.

I understand the taxes go to different entities (prop vs. income), but my point is heirs should pay taxes, one way or another, unless they sell immediately, rendering property taxes a moot issue. But they should not be allowed to hang on to the property forever while paying lower prop taxes, but then ALSO be allowed to have the stepped up basis when it comes to selling.

[CA renter]

[quote=UCGal]I had to figure out what you guys were talking about with the step-up basis.

(I’m an engineer, not an investor… and I don’t sell houses a lot so I don’t think about capital gains on a daily basis.)

I’m trying to figure out what you guys are suggesting.
– If a person inherits a house (free and clear) the cost basis is that of the time of inheritance. This is done for establishing whether estate taxes need to be paid. In fact this can happen several times on a home if the estate is large – estate taxes may kick in on half the house if half the estate is above the threshold when the first spouse dies and they don’t have a trust.

– In my case I paid full market for the house. My dad was still alive. I’m not an only child. The proceeds were his and eventually I got some back as my portion of his estate. But he could have gone to Vegas and bet it all on Red. Prop 58 does not address the form of transfer – sale, inheritance, gift. All are allowed in a prop 58 transfer. Prop 58 does not address estate taxes. The feds and CA still require estate taxes if the value of the estate (including the market value of a home if there is one) are above a threshold.

I guess I’m not too worried about capital gains when I sell, since I plan on living here till I die… But to suggest that the cost basis should be different than what I paid (full market value), I don’t get it.

Or am I misinterpreting what you guys mean about the step up cost basis. Speak slowly when you explain… I’m not an accountant or investor. ;)[/quote]

LOL, UCGal. 🙂 You can run circles around me where numbers are concerned, to be sure.

Here’s what I was talking about:

When a parent dies and leaves a house to an heir, the heir can “step-up” the cost basis of the house to the current market price. So, if my mom bought a house for $50K in 1970, and she dies in 2005, with the bubble price being $700K, as an heir, I can “step up” the cost basis to $700K and when I sell it for $700K, I pay no capital gains taxes on it. The capital gains are $0.

If I sell it in 2030 for $1MM, the cost basis (or$700K) at mom’s time of death in 2005 remains the cost basis at the time of sale in 2030, and I only owe cap gains taxes on $300K ($1MM proceeds minus $700K cost basis).

Without this stepped up cost basis, if I sold at the time of her death in 2005, I would have to pay capital gains taxes on $650K ($700K proceeds minus $50K cost basis from 1970), rather than pay taxes on zero. If I sold in 2030 at $1MM, we’d be taxed on $950K ($1MM minus $50K), instead of $300K ($1MM minus $700K “stepped-up” basis at time of death).

This is about capital gains, separate from estate taxes.
—————–

I’m agreeing with BG because, as it stands, the heirs get the original cost basis for Prop 13 (so they pay much lower property taxes), and they also get to step up the cost basis for cap gains tax purposes (and paying lower CG taxes as a result). It’s like they step up or down the cost basis, and benefit in both directions. This should not be allowed.

I understand the taxes go to different entities (prop vs. income), but my point is heirs should pay taxes, one way or another, unless they sell immediately, rendering property taxes a moot issue. But they should not be allowed to hang on to the property forever while paying lower prop taxes, but then ALSO be allowed to have the stepped up basis when it comes to selling.

[CA renter]

[quote=UCGal]I had to figure out what you guys were talking about with the step-up basis.

(I’m an engineer, not an investor… and I don’t sell houses a lot so I don’t think about capital gains on a daily basis.)

I’m trying to figure out what you guys are suggesting.
– If a person inherits a house (free and clear) the cost basis is that of the time of inheritance. This is done for establishing whether estate taxes need to be paid. In fact this can happen several times on a home if the estate is large – estate taxes may kick in on half the house if half the estate is above the threshold when the first spouse dies and they don’t have a trust.

– In my case I paid full market for the house. My dad was still alive. I’m not an only child. The proceeds were his and eventually I got some back as my portion of his estate. But he could have gone to Vegas and bet it all on Red. Prop 58 does not address the form of transfer – sale, inheritance, gift. All are allowed in a prop 58 transfer. Prop 58 does not address estate taxes. The feds and CA still require estate taxes if the value of the estate (including the market value of a home if there is one) are above a threshold.

I guess I’m not too worried about capital gains when I sell, since I plan on living here till I die… But to suggest that the cost basis should be different than what I paid (full market value), I don’t get it.

Or am I misinterpreting what you guys mean about the step up cost basis. Speak slowly when you explain… I’m not an accountant or investor. ;)[/quote]

LOL, UCGal. 🙂 You can run circles around me where numbers are concerned, to be sure.

Here’s what I was talking about:

When a parent dies and leaves a house to an heir, the heir can “step-up” the cost basis of the house to the current market price. So, if my mom bought a house for $50K in 1970, and she dies in 2005, with the bubble price being $700K, as an heir, I can “step up” the cost basis to $700K and when I sell it for $700K, I pay no capital gains taxes on it. The capital gains are $0.

If I sell it in 2030 for $1MM, the cost basis (or$700K) at mom’s time of death in 2005 remains the cost basis at the time of sale in 2030, and I only owe cap gains taxes on $300K ($1MM proceeds minus $700K cost basis).

Without this stepped up cost basis, if I sold at the time of her death in 2005, I would have to pay capital gains taxes on $650K ($700K proceeds minus $50K cost basis from 1970), rather than pay taxes on zero. If I sold in 2030 at $1MM, we’d be taxed on $950K ($1MM minus $50K), instead of $300K ($1MM minus $700K “stepped-up” basis at time of death).

This is about capital gains, separate from estate taxes.
—————–

I’m agreeing with BG because, as it stands, the heirs get the original cost basis for Prop 13 (so they pay much lower property taxes), and they also get to step up the cost basis for cap gains tax purposes (and paying lower CG taxes as a result). It’s like they step up or down the cost basis, and benefit in both directions. This should not be allowed.

I understand the taxes go to different entities (prop vs. income), but my point is heirs should pay taxes, one way or another, unless they sell immediately, rendering property taxes a moot issue. But they should not be allowed to hang on to the property forever while paying lower prop taxes, but then ALSO be allowed to have the stepped up basis when it comes to selling.

[CA renter]

[quote=UCGal]I had to figure out what you guys were talking about with the step-up basis.

(I’m an engineer, not an investor… and I don’t sell houses a lot so I don’t think about capital gains on a daily basis.)

I’m trying to figure out what you guys are suggesting.
– If a person inherits a house (free and clear) the cost basis is that of the time of inheritance. This is done for establishing whether estate taxes need to be paid. In fact this can happen several times on a home if the estate is large – estate taxes may kick in on half the house if half the estate is above the threshold when the first spouse dies and they don’t have a trust.

– In my case I paid full market for the house. My dad was still alive. I’m not an only child. The proceeds were his and eventually I got some back as my portion of his estate. But he could have gone to Vegas and bet it all on Red. Prop 58 does not address the form of transfer – sale, inheritance, gift. All are allowed in a prop 58 transfer. Prop 58 does not address estate taxes. The feds and CA still require estate taxes if the value of the estate (including the market value of a home if there is one) are above a threshold.

I guess I’m not too worried about capital gains when I sell, since I plan on living here till I die… But to suggest that the cost basis should be different than what I paid (full market value), I don’t get it.

Or am I misinterpreting what you guys mean about the step up cost basis. Speak slowly when you explain… I’m not an accountant or investor. ;)[/quote]

LOL, UCGal. 🙂 You can run circles around me where numbers are concerned, to be sure.

Here’s what I was talking about:

When a parent dies and leaves a house to an heir, the heir can “step-up” the cost basis of the house to the current market price. So, if my mom bought a house for $50K in 1970, and she dies in 2005, with the bubble price being $700K, as an heir, I can “step up” the cost basis to $700K and when I sell it for $700K, I pay no capital gains taxes on it. The capital gains are $0.

If I sell it in 2030 for $1MM, the cost basis (or$700K) at mom’s time of death in 2005 remains the cost basis at the time of sale in 2030, and I only owe cap gains taxes on $300K ($1MM proceeds minus $700K cost basis).

Without this stepped up cost basis, if I sold at the time of her death in 2005, I would have to pay capital gains taxes on $650K ($700K proceeds minus $50K cost basis from 1970), rather than pay taxes on zero. If I sold in 2030 at $1MM, we’d be taxed on $950K ($1MM minus $50K), instead of $300K ($1MM minus $700K “stepped-up” basis at time of death).

This is about capital gains, separate from estate taxes.
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I’m agreeing with BG because, as it stands, the heirs get the original cost basis for Prop 13 (so they pay much lower property taxes), and they also get to step up the cost basis for cap gains tax purposes (and paying lower CG taxes as a result). It’s like they step up or down the cost basis, and benefit in both directions. This should not be allowed.

I understand the taxes go to different entities (prop vs. income), but my point is heirs should pay taxes, one way or another, unless they sell immediately, rendering property taxes a moot issue. But they should not be allowed to hang on to the property forever while paying lower prop taxes, but then ALSO be allowed to have the stepped up basis when it comes to selling.

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