California is the only state to provide a tax break that extends the Proposition 13 advantages of strictly limiting property increases to inherited property, including income that is solely used for rental income. The extension was enacted 8 years ago and had the intention of helping adult children not lose their family home when their parents passed away. But instead of helping the middle class the law is allowing a wealthier class of citizens take greater advantage of their predecessors investments.
In Los Angeles County, as many as 63% of homes inherited under the system were used as second residences or rental properties last year, and the trend continues in other counties along the coast. And n Los Angeles County alone, the tax benefit cost schools, cities and county government more than $280 million in revenue last year. Proposition 13 and the inheritance tax law place no limits on how many levels of descendants may take advantage of the tax break, and the homeowner is not required to live in California.
The author of the law, Thomas Hannigan, did not predict this result 8 years ago. “I tried to do the right thing. Obviously, it had unintended consequences.
See Liam Dillon & Ben Poston, California Homeowners Get to Pass Low Property Taxes to Their Kids. It’s Proved Highly Profitable to an Elite Group, Los Angeles Times, August 17, 2018.