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California’s Inheritance Tax Break Is Helping Some Much More Than Others

An inheritance tax benefit, along with Proposition 13, has resulted in lower tax rates passing down through generations and billions of dollars in lost tax revenue.
August 30, 2018, 8am PDT | Camille Fink
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Southern California Coast
Creative Family

For long-term homeowners, Proposition 13 has kept property taxes low and tied to property values from the 1970s. Liam Dillon and Ben Poston report on a Los Angeles Times analysis of the effects of an inheritance tax break passed in 1986, eight years after Proposition 13. For over 30 years, Proposition 58 has allowed parents to pass on these tax benefits to their children, generation after generation.

The study of 13 coastal communities found that these inherited houses are located in areas with higher property values. In addition, many of the properties in vacation spots and wealthier parts of Los Angeles County are rentals or used as second homes. The consequences, say Dillon and Poston, have been twofold:

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.

Policymakers and advocates acknowledge the inheritance tax break was enacted in the state’s anti-tax political environment of the 1970s and its unanticipated effects are creating a tiered system. However, the robust support for Proposition 13 and failed past attempts to change it mean any reform efforts around the inheritance tax break face an uphill battle.

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